Arthur Hayes – BitMEX Blog The official blog of BitMEX, the Bitcoin Mercantile Exchange. Fri, 23 Feb 2018 20:38:40 +0000 en-US hourly 1 Arthur Hayes – BitMEX Blog 32 32 78374597 XTZZ17 Settlement Details Thu, 28 Dec 2017 02:43:13 +0000 Tezzies currently are not tradable on Bittrex, Kraken, or Poloniex. Therefore, as specified by the Tezos Series Guide, the BitMEX Tezos / Bitcoin 29 December 2017 futures contract, XTZZ17, will settle at the ICO price of 0.0002 XBT.

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Bitcoin Cash Sale Summary Thu, 28 Dec 2017 02:34:35 +0000 BitMEX completed the sale of all Bitcoin Cash (BCH) held on behalf of our users. Bitcoin Cash sale details:

  • The amount of Bitcoin Cash a user is entitled to is determined by their Margin Balance at 1 August 2017 13:17 UTC, a few seconds after block 478,588.
  • Bitcoin Cash to Bitcoin (XBT) Ratio: 1 BCH to 0.1707 XBT
  • Users’ BitMEX Bitcoin wallets will be credited with the amount of Bitcoin they are entitled to.

The Insurance Fund was credited with 120.5321631 XBT due to its holdings of Bitcoin Cash.

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XBTH18, The Main Event Tue, 26 Dec 2017 19:08:57 +0000

The launch of the new Bitcoin quarterly contract is always an exciting time. The basis or lack thereof points to trader excitement or apathy. As Bitcoin nears $20,000 and with the CBOE and CME now on board, the basis gyrations of the BitMEX Bitcoin / USD 30 March 2018 futures will fascinate traders.

The leading factor in the basis movements will be the CBOE and more so the CME Bitcoin futures contracts.

The CME contract launches Monday morning Asia time. As a betting man, I predict the basis will move up and to the right in an aggressive fashion. This will carry XBTH18 basis higher as well. Therefore for those who cannot trade the CME contract, using XBTH18 is a great way to play the most anticipated launch of a crypto related product to date.

Strategy 1: Bullish on price and basis

For those who believe the price and basis will rise together, go long XBTH18. This the highest risk strategy I will propose, but also has the largest profit potential.

Strategy 2: Bullish on price and basis, but delta neutral

For those who do not want to run naked Bitcoin delta, go long XBTH18 vs. short XBTUSD. You make money on basis expansion via the long XBTH18 position. If the price and futures basis are rising, the XBTUSD swap will also trade at a premium. That means that as a short, you will receive funding.

This strategy is predicated on your view that the price will rise. The FOMO will invite buyers to pay a premium for the 100x leverage. This is what drives the futures basis and swap funding higher.

Strategy 3: Bullish on basis, and delta neutral

This strategy is for those who believe that buyers will exert extreme pressure on the CME futures basis, but are not exactly sure whether the price will go up or down.

Traders should go long XBTH18 and short spot Bitcoin. This trade only makes money if the XBTH18 basis increases.


Bitcoin moves are exaggerated over weekends when flat cash ceases to travel between exchanges. The FOMO before the CME launch will be legendary, thus it behooves traders to put these trades on as early as possible.

You don’t want to wake up Saturday morning, after a Volar session, to the XBTH18 basis trading a few percentage points higher. The time to buy is now.

]]> 7227 7414 7225 CBOE Bitcoin Shorts Got Ashdrake’d Tue, 26 Dec 2017 09:07:40 +0000 fb9d9324-2a02-432e-bff9-5e70b7efa3a0.jpg

There once was a trader who went by the handle Lord Ashdrake. He was a Romanian programmer, and was a prolific force during the nuclear Bitcoin winter in 2014 and 2015. His skill was shorting Bitcoin, and that strategy worked like a charm until it didn’t.

When Bitcoin finally broke and held $300, Ashdrake performed his usual action of shorting Bitcoin. Unfortunately this time, the price continued through $300 to $500, and almost touched $600 in under 2 months.

He completely blew up his account to the point where he could no longer trade Bitcoin. His folly was being unable to shift into a bull market mindset. The trader community coined the term “to be Ashdrake’d.” It meant to completely blow up your trading account by shorting Bitcoin.

Leading up to Monday’s CBOE Bitcoin futures launch, the financial media constantly droned on that institutional investors would line up to short Bitcoin into the ground. However within twelve hours after the launch, the CBOE Jan Bitcoin future hit the circuit breaker three times, and was up over 20%.

Interactive Brokers was so afraid of being Ashdrake’d they did not allow clients to go net short the futures contract. They have since reversed that stance, but shorts must post a whopping 400% margin.

Contango, Anyone?

As I write this the CBOE future continues to trade at a premium to spot. There is a very simple reason why this future should usually trade at a premium.

Consider the plight of the average traditional active asset manager. Global central banks crushed volatility in all asset classes in their relentless drive to create inflation. Bonds, equities, ETFs, asset-backed securities are all prominently featured on central bank balance sheets.

Retail investors noticed. They realised en masse it is better to own a passive market-tracking ETF, than entrust an expensive human to generate “alpha”. Even the so-called smart money became glorified beta-chasers.

However, Bitcoin and other digital currencies continued to be volatile, have a negative correlation to risky assets, and go up in value. If I am an average active fund manager, I am surely underperforming a passive equity investment in the S&P 500, for example.

If I do nothing, I will certainly lose assets to passive ETFs with lower fees and better performance. However, I could swing the bat and import a call option with a negative correlation to my portfolio as a whole. If it goes to 0, who cares? I was going to underperform the index anyway. If it rises 50% to 100% in a month, I have added a few crucial basis points to my performance. That could be the difference between receiving a doughnut as a bonus or getting PAID.

That call option is going long Bitcoin futures. I don’t have to believe in Bitcoin, only its price, volatility, correlation, and liquidity. I don’t have to hold Bitcoin. I only need to use the USD already deposited with the CBOE or CME to trade the futures contract.

The specs will be net long Bitcoin futures contracts. The market makers who are delta neutral will sell futures and purchase Bitcoin. As I have said previously, market makers must receive a very high basis to compensate them for the USD margin they must post.

Unfortunately for these market makers, unrealised USD gains from being long Bitcoin cannot be used to offset the unrealised USD losses on their short futures position. Therefore the basis must be attractive enough to compensate for the large balance sheet usage.

The basis on the CBOE opened close to +10%, and now trades in the +3% to +5% range.

CME Game Time

All the traders I speak to unanimously prefer the CME’s contract structure to the CBOE’s. The main point of contention is that the CBOE uses only Gemini as a reference exchange. The liquidity of Gemini pales in comparison to the sum of Bitstamp, GDAX, itbit, and Kraken.

The CBOE launch on Monday whetted the appetite of speculators globally. Never before in my markets career have I seen such attention paid to a new futures contract.

The game has just begun, and the CME is going to rain 3’s like Steve Kerr all over the CBOE.

Out of the gate I expect the CME near month contract to hit the 7%, then 13% circuit breakers. By mid-morning Asia time, I expect the contract to be limit up at 20%.

Tame Bitcoin … Yeah, Right

Bitcoin is a wild bucking bronco, and the CBOE and CME lack the skills to ride 8 seconds.

We crypto traders should thank our lucky stars that these venerable exchanges decided to list futures contracts this year. The volatility and attention they have brought exceed anything I could have imagined.

Central banks saved commercial banks from certain death via aggressive money printing. However 9 years after the GFC, banks and investors are desperate for volatility. Bitcoin, altcoins, ICOs and all manner of digital tokens provide the long lost market gyrations that made generations of traders wealthy.

As Jesse Livermore said:

“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend.”

Moral of the story: don’t get Ashdrake’d. BTFD, ya hearrd?

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BitMEX Product List Update Tue, 12 Dec 2017 08:07:23 +0000 Quarterly Bitcoin / USD Futures Contracts

The following quarterly contracts will be listed on or before 15 December 2017 12:00 UTC:

  • BitMEX Bitcoin / USD 30 March 2018 futures contract, XBTH18

We will add the BitMEX Bitcoin / USD 29 June 2018 futures contract, XBTM18, in the near future.

Quarterly Bitcoin / JPY Futures Contracts

No new Bitcoin / JPY quarterly contract will be listed after the BitMEX Bitcoin / JPY 29 December 2017 futures contract, XBJZ17, expires. We will add a Bitcoin / JPY perpetual swap in the near future.

Quarterly Altcoin Futures Contracts

The following quarterly contracts will be listed on or before 15 December 2017 12:00 UTC:

  • BitMEX Ether / Bitcoin 30 March 2018 futures contract, ETHH18
  • BitMEX Dash / Bitcoin 30 March 2018 futures contract, DASHH18
  • BitMEX Litecoin / Bitcoin 30 March 2018 futures contract, LTCH18
  • BitMEX Monero / Bitcoin 30 March 2018 futures contract, XMRH18
  • BitMEX Ripple / Bitcoin 30 March 2018 futures contract, XRPH18
  • BitMEX Zcash / Bitcoin 30 March 2018 futures contract, ZECH18

Please note the fee structure for all altcoin futures contracts will change to maker / taker, -0.05% / +0.25%.

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I’ll Take That Wed, 06 Dec 2017 02:09:40 +0000

Building wealth is the easy part, securing and storing it for use by subsequent generations is very difficult.

Half a millennium ago, a wealthy family needed a private army to secure its land and wealth. If you couldn’t project violence in the defence of your assets, they would be forcibly taken by an opportunistic person.

As civilisations evolved and we entered the age of the nation state, society agreed that a centralised government should have a legal license to kill in order to secure the interests of property owners. Regardless of the economic “ism” a government claims to practice, the goal is the same. Protect a small group of asset holders against the hoard of commoners who might like to improve their lot at the expense of the elites.

Today the richest humans don’t command standing armies, and their holdings include financial and real assets. Stock and bond ownership relies on a central depository to affirm that you indeed are the owner. Government deed offices proclaim a piece of land or real estate is yours.

You are rich as long as the government allows you to be. The trappings of wealth can be taken at a whim. Should your actions upset a powerful state actor, your bank accounts will be frozen, and assets confiscated through the courts.

The recent Saudi corruption drive is case and point. Mohammad bin Salman (MBS), the crown prince of Saudi Arabia, is on a mission to wean the country off of oil. This is harder said than done, especially since the general population only complies because of generous government handouts. To beef up the government coffers, MBS did what all governments do, go after certain rich people.

MBS certainly wouldn’t subject himself to austerity. Last year he purchased a yacht worth over $500 million while at the same time slashing government spending.

Overnight some of the country’s richest members were herded to the Ritz Carlton, and placed under arrest owing to “corruption” charges. The most famous billionaire ensnared was Prince Alwaleed bin Talal. This Price is a world famous investor and has large stakes in some of the biggest tech darlings globally.

After a few days cooped up in the Ritz, MBS presented his chattel with a choice. Liquidate your assets and give the Saudi government up to 70%, or stay locked up. Even if a large percentage of your wealth is held offshore, due to information sharing between governments, MBS likely knows where the biggest nuggets are held. If he doesn’t think you have been forthcoming enough with the true state of your offshore wealth, well the Yemeni front line is awful fun these days.

Bitcoin presents a different way to secure wealth. Instead of trusting a government staffed with capricious humans, holders of Bitcoin trust cryptography and a decentralised network of profit motivated miners.

Bitcoin is less than a decade old, and is still very much an experiment. But if you possess a sum of wealth, it is prudent to diversify the networks used to secure it. Many people believe if they follow the “law”, they will be alright. However, laws change to serve the growth and power of the government writing them.

The government failures in Venezuela and Zimbabwe illustrate that in times of crisis Bitcoin can be used to grease the wheels of commerce. Unfortunately for most, it takes a time of crisis to elucidate the fatal flaws of a particular economic system. Only then will people take concrete actions, which only moments ago, were diametrically opposed to their belief system. At that point it’s too late.

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BitMEX vs. CME Futures Guide Wed, 06 Dec 2017 02:07:38 +0000 Bitcoin is at a watershed moment. The Chicago Mercantile Exchange (CME), the largest exchange globally by notional traded, deemed Bitcoin worthy of a futures contract. The contract will allow investors to speculate on the Bitcoin / USD price without owning Bitcoin. Prior to this contract, derivatives traders were required to own Bitcoin in order to post margin on futures trading platforms such as BitMEX.

Due to the different client bases that BitMEX (retail), and the CME (professional investors) serve, the price discrepancies between two futures contracts with the same underlying will present enormous opportunities to generate arbitrage profits. This guide will walk traders through how to execute such trades.

Contract Specs

Each CME contract is worth 5 Bitcoin (XBT), and quoted in USD. Margin and profit and loss (PNL) are denominated in USD. This is what I refer to as a linear contract structure.

CME XBT Value = 5 XBT * Contracts
CME USD Value = 5 XBT * Price * Contracts

Each BitMEX contract is worth 1 USD of Bitcoin, and quoted in USD. Margin and PNL are denominated in XBT. This is what I refer to as an inverse contract structure.

BitMEX XBT Value = 1/Price * 1 USD * Contracts
BitMEX USD Value = 1 USD * Contracts

The above chart shows the XBT value of each contract. The CME contract has a fixed value in Bitcoin no matter the spot price. The BitMEX contract’s Bitcoin value follows a 1/x function. Technically speaking the BitMEX multiplier is negative, even though in the graph uses a positive multiplier for a better visualisation.

Assume you are long 10,000 contracts at a price of $1,000.

XBT Value = 1/$1,000 * -1 USD * 10,000 = -10 XBT

Now the price falls to $500.

XBT Value = 1/$500 * -1 USD * 10,000 = -20 XBT

At a lower price, the XBT value is a larger negative number.

XBT PNL = -20 XBT - (-10 XBT) = -10 XBT

This means that the value in Bitcoin declines faster as the price falls, and increases slower as the price rises. That is negative gamma, or negative convexity.

The above chart shows the USD value of each contract. The CME contract’s USD value changes in a linear fashion with respect to the spot price. The BitMEX contract’s USD value is fixed at $1 per contract.

CME Contract Specs

Contract Size

The CME contract is much larger in notional terms than BitMEX’s. If the price of Bitcoin is $8,000, one CME contract is worth $40,000. To achieve a similar notional on BitMEX requires 40,000 contracts.

When I touch on spread trades later, the much larger CME notional means that only traders with large amounts of capital can put on these trades. This limiting factor, along with the lower leverage offered by the CME, means most retail traders will be unable to trade the CME product.


The first major difference between the two contracts is the underlying index. The CME settles on the CME CF Bitcoin Reference Rate. This index includes prices from Bitstamp, Gdax, itBit, and Kraken. BitMEX settles on the BitMEX Index that includes Bitstamp and Gdax.

Traders who hold either contract to expiry will need to familiarise themselves with each index, and at a minimum be able to trade on all four exchanges.

Both BitMEX and the CME expire on the last Friday of the contract month. However, BitMEX expires at 12:00 UTC, while the CME expires at 16:00 London Time which is either 16:00 UTC or 15:00 UTC depending on daylight savings. Given that the expiry time differs by only 3 to 4 hours, there is little benefit to adjust the time value when computing relative basis.


Bitcoin is a call option. The more volatile it is, the more valuable the option. Due to an infinite upside, and a capped downside at 0, the trading pressure on the margin comes from longs. That means that market makers who are price neutral will usually be short derivatives. Their propensity to quote an offer depends on how easily it is to purchase spot Bitcoin, and how their short derivative is margined.

As I previously mentioned the BitMEX contract is margined in XBT. That means that shorts can purchase spot Bitcoin and use this as collateral against their BitMEX short. If you buy $1,000 of Bitcoin, deposit the full XBT notional with BitMEX, then short 1,000 BitMEX contracts, you cannot be liquidated if the price rises.

BitMEX shorts, due to the inverse contract structure, are long gamma in XBT terms. That means as the price rises, their unrealised losses increase less quickly. Therefore, BitMEX shorts can use more leverage than they otherwise would if the contract used a linear contract structure.

Contrast that with the CME, which margins the contract in USD. For a market maker who is short, their spot Bitcoin hedge cannot be used as margin at the CME. As the price rises, their Bitcoin is worth more; however those unrealised USD gains cannot be deposited as margin. The CME will demand more USD collateral as the unrealised losses mount.

This makes shorting the CME contract very capital intensive. A priori, I expect the CME contract to trade more expensive than BitMEX. CME shorts need to be compensated via a higher basis for their implicit short volatility position.

The CME intends to list a futures curve out to one year. The backend of the curve, due to a larger time value, will be illiquid when compared to the front months, and will trade at a very high basis.

I will now present two spread trades. Assume that you are a USD based investor.

Spread Trade: Long BitMEX vs. Short CME

Assume the following:

Leverage: 5x / Initial Margin of 20%

Spot = $8,000
BitMEX = $8,000
Contracts = Long 200,000
CME = $10,000
Contracts = Short 6
Spread = $2,000

First compute the XBT and USD exposures.

On BitMEX:
XBT Exposure: 200,000 Long Contracts / $8,000 = +25 XBT
USD Exposure: 200,000 Long Contracts * 1 USD = -$200,000
Margin Requirement: 20% * 25 XBT = 5 XBT
Collateral Currency Exposure vs. USD: +5 XBT / -$40,000 (Valued at the spot price)

XBT Exposure: 6 Short Contracts * 5 XBT = -30 XBT
USD Exposure: 6 Short Contracts * 5 XBT * $10,000 = +$300,000
Margin Requirement: 20% * $300,000 = $60,000
Collateral Currency Exposure vs. USD = 0

Because you are a USD based investor, you must ensure that you do not have XBT/USD risk at any time. Due to the XBT BitMEX margin requirement, you must short an additional 1 CME contact to hedge the 5 XBT margin required on BitMEX.

Margin XBT/USD Price Risk:
BitMEX: +5 XBT / -$40,000
CME: -5 XBT / +$50,000 (Short 1 Contract)
Net: 0 XBT / +$10,000

Due to the CME’s higher basis, we earn carry on the BitMEX XBT collateral.

Spread XBT/USD Price Risk:

BitMEX: +25 XBT / -$200,000 (Long 200,000 Contracts)
CME: -25 XBT / +$250,000 (Short 5 Contracts)
Net: 0 XBT / +$50,000

As predicted, we earn $50,000 PNL from this spread trade. The below table stresses the portfolio on a large up and down move.

$4,000 -25.00 XBT -$100,000 $150,000 $50,000
$8,000 0.00 XBT $0 $50,000 $50,000
$16,000 12.50 XBT $200,000 -$150,000 $50,000

The trade continues to return $50,000 regardless of the price movement. However, this is a leveraged trade, we must post additional margin on either BitMEX or the CME depending on the price move.

The below table summarises what actions must be taken to ensure we meet margin requirements.

Margin Action Currency Needed
Price Falls Buy then deposit XBT on BMEX, sell CME contracts XBT & USD
Price Rises Deposit USD to CME USD

Because we are short gamma on our long BitMEX position, we must post XBT and sell CME contracts to hedge the XBT collateral. Both of these derivatives require additional margin. On the upside, we only need to post additional USD with the CME. Depending on your cost of capital, a prolonged down move without any recovery could become very expensive.

Another issue is the sizing of this trade. Each CME contract is worth 5 XBT. If you wish to remain price neutral on your XBT collateral, a 5 XBT loss needs to be a small % with respect to your trade notional. Otherwise you will always be over and under hedged. The below table illustrates this point.

Entry Price: $8,000
Multiplier: -1 USD (for inverse contracts the multiplier is actually negative)

Contracts XBT Value Down % Move Up % Move
50,000 -6.25 XBT $4,444.44 -44.44% $40,000.00 400.00%
250,000 -31.25 XBT $6,896.55 -13.79% $9,523.81 19.05%
500,000 -62.50 XBT $7,407.41 -7.41% $8,695.65 8.70%
1,000,000 -125.00 XBT $7,692.31 -3.85% $8,333.33 4.17%
2,500,000 -312.50 XBT $7,874.02 -1.57% $8,130.08 1.63%
5,000,000 -625.00 XBT $7,936.51 -0.79% $8,064.52 0.81%

The % Move is a measure of how far the price needs to move up or down to generate a contract value change of 5 XBT. As you can see, go big or go home.

Spread Trade: Short BitMEX vs. Long CME

Assume the following:

Leverage: 5x / Initial Margin of 20%

Spot = $8,000
BitMEX = $10,000
Contracts = Short 250,000
CME = $8,000
Contracts = Long 5
Spread = $2,000

First compute the XBT and USD exposures.

On BitMEX:
XBT Exposure: 250,000 Short Contracts / $10,000 = -25 XBT
USD Exposure: 250,000 Short Contracts * 1 USD = +$250,000
Margin Requirement: 20% * 25 XBT = 5 XBT
Collateral Currency Exposure vs. USD: +5 XBT / -$40,000

In order to hedge the 5 XBT of margin required, sell an additional 50,000 BitMEX contracts.

XBT Exposure: 50,000 Short Contracts / $10,000 = -5 XBT
USD Exposure: 50,000 Short Contracts * 1 USD = +$50,000
Net: 0 XBT / $10,000

XBT Exposure: 5 Long Contracts * 5 XBT = +25 XBT
USD Exposure: 5 Long Contracts * 5 XBT * $8,000 = -$200,000
Margin Requirement: 20% * $200,000 = $40,000
Collateral Currency Exposure vs. USD = 0

Spread XBT/USD Price Risk:
BitMEX: -25 XBT / +$250,000 (Short 250,000 Contracts)
CME: +25 XBT / -$200,000 (Long 5 Contracts)
Net: 0 XBT / +$50,000

As predicted, we earn $50,000 PNL from this spread trade. The below table stresses the portfolio on a large up and down move.

$4,000 37.50 XBT $150,000 -$100,000 $50,000
$8,000 6.25 XBT $50,000 $0 $50,000
$16,000 -9.38 XBT -$150,000 $200,000 $50,000

The trade continues to return $50,000 regardless of the price movement. However, this is a leveraged trade, we must post additional margin on either BitMEX or the CME depending on the price move.

The below table summarises what actions must be taken to ensure we meet margin requirements.

Margin Action Currency Needed
Price Falls Deposit USD to CME USD
Price Rises Buy then deposit XBT on BMEX, sell BMEX contracts XBT

Because you have positive gamma on the short BitMEX position, you will not face a doubling of margin requirements when the price falls. This spread trade is more capital efficient; however, I doubt whether BitMEX will frequently trade more expensive than the CME for reasons described above.

Gap Risk

The CME does not trade over the weekend. Longs or shorts depending on the price action over the weekend, could be insta-rekt when the exchange reopens Sunday night US time.

Interactive Brokers, one of the CME’s clearing members, expressed severe reservations about this product due to the high volatility. They are scared shitless about how to deal with underwater shorts. It is not impossible for Bitcoin to gap up 100% in a matter of hours on positive news. Imagine what will happen when an ETF finally is approved.

BitMEX deals with gap risk via Auto-Deleveraging. The CME at the present moment cannot employ a socialised loss feature. Instead, clearing members must pony up the cash. That is why they are being such scaredy cats.

Depending on your broker, margin requirements for short positions could be extremely unforgiving. This will push CME basis up even further, and make putting on the spread trade described above, even more expensive.

Are You Yellow?

Arbitraging BitMEX vs. the CME requires a high level of trading sophistication and attention to detail. The different margin currencies and policies present many opportunities to transform what is a sure profit into a massive loss.

However, owing its the difficulty, these spread trades will be juicy. For students of markets, this is an arbitrage opportunity of a lifetime. Those who put in the time to perfect these strategies, will profit handsomely.

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Bitcoin Cash Futures Now Live Wed, 15 Nov 2017 03:07:55 +0000 BitMEX BCHX17 Futures Now Live

We are pleased to announce that the BitMEX 24 November 2017 Bitcoin Cash / Bitcoin futures contract is now live.​

  • Symbol: BCHX17
  • Expiry Date: 24 November 2017 12:00 UTC
  • Contract Value: 1 BCH
  • Underlying: Poloniex Bitcoin Cash / Bitcoin exchange rate
  • Leverage: 20x

​BitMEX Bitcoin Cash Holdings

On or before 31 December 2017:​

  • The amount of Bitcoin Cash a user is entitled to is determined by their Margin Balance at 1 August 2017 13:17 UTC, a few seconds after block 478,588.
  • Users will not receive Bitcoin Cash, rather BitMEX will sell all users’ Bitcoin Cash, and credit their wallet with the Bitcoin proceeds.

BitMEX Future Hard Fork Policy

BitMEX does not agree with contentious hard forks, and does not accept the manner in which Bitcoin Cash was forked, or the lack of preparation or notice before the fork; we consider this a dangerous action that imposes unacceptable costs on end-users and businesses. Please read our Policy on Bitcoin Hard Forks for acceptable hard-fork criteria.

However, months after the fork, it is clear this coin still has value and popular demand, so we have decided to credit Bitcoin at the prevailing Bitcoin Cash price. Do not expect future coins to be credited in this way. BitMEX reserves the right to credit forks or not – in the presence of doubt, always withdraw first.

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The Deutsche Bank Connection Tue, 14 Nov 2017 09:29:42 +0000

Bankers are flocking to the cryptocurrency industry as both principals and employees of related companies, fund managers, and as individual traders. Amid the rush towards this decade’s green financial pastures, one office of one bank stands out, Deutsche Bank Hong Kong.

Deutsche Bank’s foray into investment banking began with its acquisition of Bankers Trust. The firm then proceeded to ditch its conservative German roots, and import the biggest swingers in the industry. A clique of Merrill Lynch bankers were brought in. Their ring leader was Anshu Jain.

The culture was cowboy. My Hong Kong summer internship interviews in 2007 illustrates this point.

The first round of interviews was in Philadelphia. In my second 2-on-1 interview I met the man who’s team I would intern on that summer. I had just returned from my semester abroad in Hong Kong. He asked me why I loved Hong Kong, and I said I loved clubbing. I then rattled of a list of my favourite establishments. He would later tell me, that’s what sealed the deal for me in his mind.

That night I took the whole Deutsche contingent to my favorite dingy Philly late night EDM club. It got messy.

In 2007, financiers thought they were gods. Hong Kong has never regained the energy I felt that summer. I interned on the Equity Derivatives sales desk. HR nicknamed this desk the Snake Pit, because of the aggressive personalities that worked there.

The 2008 graduate training program in London featured similar aggressiveness. Deutsche offered an all expense paid trip to London for three months for all incoming graduates. The Japanese grads were the most intense. One grad got so drunk, and vomited so hard, he was hospitalised with a broken rib.

That is a taste of how the youngins were trained at Deutsche. The firm fostered an aggressive culture focused on partying hard, and making money. Unlike more demure banks, no one at Deutsche was shy as to why they were in the game. Making money was the goal, and no one was censured for being too flashy.

As the financial services industry entered a secular decline after the 2008 GFC, Deutsche people scattered to the wind. Deutsche lied to the German regulators about the value of its assets in an effort to avoid becoming recapitalised by the taxpayers. In hind side, that was the dumbest move ever. Their competing American banks gladly took TARP funds, paid huge bonus, and repaired their balance sheets. Deutsche limped along, and is one of the worst performing banks since the crisis.

The Deutsche Hong Kong reunion was ignited by Bitcoin. For some reason, this particular office is very well represented in the Bitcoin industry. The individuals I will list all went through the graduate training program, and our Deutsche stints all overlapped.

Arthur Hayes, CEO of BitMEX, member of the 2008 graduate class. I worked in Absolute Strategies Group, and then Global Prime Finance as a delta one ETF, futures, and swaps trader.

Greg Dwyer, Head of Business Development at BitMEX, member of the 2009 graduate class. He worked on the commodity structuring desk in Singapore, and then worked with me on the delta one ETF market making desk.

Nick Andrianov, Risk Management at BitMEX, member of the 2007 graduate class. He worked on the Flow and Exotic Index Volatility trading desk.

Andrew Rizkalla, Trading Lead at Paycase, member of the 2008 graduate class. He worked on the Program Trading and Facilitation desks.

Kayvon Pirestani, Director of Institutional Sales at Coinbase, member of the 2005 graduate class. He worked on the Equity Derivatives Sales desk.

Gavin Yeung, CEO of Cryptomover, member of the 2010 graduate class. He worked on the Program Trading and Facilitation desk.

Neelabh Dixit, co-founder of Cryptomover, member of the 2013 graduate class. He worked on the Portfolio Trading desk.

Donald Day, CTO Bletchy Park Asset Management, member of the 2009 graduate class. He worked as a quant strategist for the Absolute Strategy Group.

The are two other Deutsche Bank HK former employees who did not wish to be mentioned.

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All Hail The CME Tue, 14 Nov 2017 09:17:38 +0000

Due to overbearing and counterproductive financial regulations, innovation is often rewarded with heavy fines and loss of licenses. An institution with billions of dollars of revenue at stake cannot take the regulatory and reputational risk dealing with Bitcoin unless someone else does it first.

Enter, LedgerX. For over four years, the firm pestered the CFTC to allow them to clear Bitcoin settled futures and options. The hard work paid off this fall when their markets launched. Less than two weeks later, the CME announced they too would join the club. The CBOE technically was the first legacy exchange to announce the impending launch of a USD settled Bitcoin futures contract; however, the CBOE will go live 2Q2018 and the CME plans to launch theirs by year end.

The only reason why some large financial institutions (FI) participate in the digital currency ecosystem is they cannot ignore an asset class that went from $0 to almost $200 billion in value in under a decade. Large FIs are severely constrained in their ability to deploy large amounts of capital due to counterparty risk on exchanges not compliant with their specific jurisdictional overseers. An exchange who they can already trade with, the CME, that offers Bitcoin trading products is exactly what they need to seriously get involved.

Custody Risk

A USD-settled Bitcoin futures contract is perfect for large traders who cannot or will not custody Bitcoin. This futures contract gives them exactly what they desire, a product that pays them fiat currency to speculate on a crypto currency.

From the CME’s perspective, they also absolve themselves of the risk of losing customer Bitcoin. This product requires almost zero technical innovation on their part.


The BitMEX XBTUSD swap is the most liquid Bitcoin / USD trading product globally. XBTUSD trades 5x – 10x more volume than the underlying index constituents, GDAX and Bitstamp, combined. XBTUSD’s daily trading turnover routinely exceeds $1 billion, and approaches $2 billion.

The CME index will include itbit and Kraken as well. For market makers who must hedge flow on the underlying exchanges, two seriously liquid derivative contracts will increase the volatility in the spot markets. It will also place immense strain on the spot exchanges’ infrastructure. Can these four exchanges stand up to the likes of Citadel submitting, amending, and cancelling thousands of orders per minute? Time will tell, but the CME is about to get a crash course in Bitcoin.

These issues probably influenced the way in which their index was constructed. The index methodology is overly complex in an attempt to deal with the forecasted liquidity and technological issues the leading spot exchanges face.

BitMEX takes a more laissez-faire attitude about the Bitcoin markets than the CME can afford. Every financial reporter will be watching for any misstep, and the headlines will come hard and fast highlighting any issues.

Market Fragmentation

The Bitcoin markets are highly fragmented due to different regulatory regimes and cultural differences between traders from different domiciles. The type of trader who can trade with the CME cannot trade with many of the exchanges where the reference pricing occurs.

This presents a trading opportunity of a lifetime for arbitrage funds who can straddle the regulated and unregulated exchanges, and who can trade across multiple jurisdictions. The divergences will become more acute as large positions are placed on CME and CBOE products.

Will the regulated derivatives follow or lead vs. the cowboy trading occurring in North Asia? From a market microstructure perspective, this will be a very interesting experiment.

ETF Anyone?

In the disapproval of the Winklevoss ETF COIN, the SEC stated that the absence of a liquid regulated derivatives market concerned them. If the CME doesn’t face plant, this will pave the way for the ETF. The SEC dances to the beat of large FIs. If the CME is reaping immense profits from a derivative, asset managers will want in on the racket via a listed ETF.

Much like LedgerX, the Winklevii might be bested by a large ETF manager like Blackrock or Vanguard, who now has the regulatory cover to apply for their own Bitcoin ETF. Blackrock vs. the Winklevii; who has more capacity to provide push jobs for ex-SEC staffers?

While futures will allow wealthy individual traders and large FIs to comfortably trade Bitcoin, an ETF that appeals to retail investors globally will completely change the paradigm. Starting next year, expect more noise about an ETF approval emanating from the SEC.

Slow then Fast

I did not expect institutional take-up of Bitcoin to grow this quickly. There is too much money being made by startups in the space for large FIs not to get involved. As more and more of the regulatory and repetitional risk is removed, institutions will continue to increase their involvement and exposure.

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