- BitMEX has 34k BTC in the insurance fund and $2bln+ in customers’ assets with $1.5bln in open interest
- Binance catching up quickly on liquidity – a key long term success factor for a derivatives exchange
- Exchange remains in a very strong position but competition is real, its number of daily users has been decreasing
Total Open Interest (OI) across contracts on BitMEX currently is north of $1.5 billion. This is the number of open positions on BTC/USD trading pairs on the cryptocurrency derivatives exchange. Usually, whenever OI reaches $1 billion, increased volatility in BTC price is expected.
“Open interest is a proxy for leverage and it’s a useful metric … bitcoin traders often talk of $1B as a sell signal,” pointed out economist and trader Alex Kruger.
Crypto research firm Delphi Digital also tried to quantify the significance of the trend in its report from last year.
On looking into returns and frequency of price decline during all hours not spent above 1B from June to Sep. 2019, it found, “The frequency of declines shows how it’s basically a coin flip when looking at your average time period.”
Despite a challenging H2 19, BitMEX funds grew
Meanwhile, the exchange has $320mln in the insurance fund & $2bln+ in customers’ assets.
Popular Seychelles-based BitMEX continues to be trusted by its customers to keep their funds safe, with the balance in their cold wallet continuing to increase.
Crypto data platform Skew reports, “With 34k BTC in the insurance fund, the exchange most likely runs the most capitalised crypto-native clearing house in the industry.”
“Customers continue to trust BitMEX with their funds!” said Skew despite the exchange having a “more challenging” second half of last year.
BitMEX kicked off H2 of 2019 on a bad note when the US Commodity Futures Trading Commission (CFTC) launched a probe into the exchange in July. The CFTC considers cryptos like bitcoin commodities and has jurisdiction over their derivatives, as such requiring BitMEX to register with the agency to cater to traders in the US.
Arthur Hayes, CEO of the exchange that offers margin trading with up to 100x leverage told Bloomberg at that time,
“We continue to monitor all legal and regulatory developments around the world and will comply with all applicable laws and regulations; we reject any allegations of criminality, manipulation or unfair treatment of our customers, who are at the center of everything we do.”
But this wasn’t all, a few months later in November, the exchange accidentally leaked sensitive data of its users because the company failed to apply a blind copy to its mass email servers.
Other catching up with its liquidity
While BitMEX continues to face such issues, competition in the perpetual swap product it created started heating up as well.
In terms of liquidity — a key long term success factor for a derivatives exchange — although of XBTUSD contract remains the best in the industry, Binance has been catching up quickly since the start of the year.
The world’s leading cryptocurrency exchange is also offering perpetual contracts and its liquidity is now getting closer to BitMEX.
To reward the liquidity providers, Binance announced this week that they will introduce negative fees for select trading pairs for those market makers whose 30-day volumes exceed 1,000 BTC.
BitMEX remains in a very strong position but competition is real
BitMEX’s volume, Skew found is in multi-billion on a daily basis but the increased competition means it “has to share the pie with other venues.” This means BitMEX “remains in a very strong position but competition is here for real!”
The effects can already be seen in its number of daily users which has been slightly decreasing.
“Until July last year, a day with <20k users was a slow day, >20k looks since August to be more of a strong day.”