BitMEX: Is This Pinnacle of Customer Fraud Coming to an End?

Things That Led up to this Article

At BitQuant, most of the team members have a background in trading and investments in blockchain startups. Thus, it is not uncommon for us to encounter fraudulent practices exercised by the biggest actors in the space. Though we’ve experienced many cases of scam and fraud during our careers. So, we decided to learn from the mistakes of others and build our own, transparent, multi-functional and scam-free exchange.

Today, we want to examine the BitMex’s mistake - a fraud case - to educate and protect the community, as well as to remind ourselves which operational approach we shouldn't apply. What we’re seeing with BitMEX is not only beyond comprehension, but also extremely dangerous for the health of the overall ecosystem.

For this reason, we’ve decided to provide facts which, in our view, provide a crystal-clear picture of how BitMEX trades against its customers. Enjoy the read and follow our blog for more investigations like this.

A Few Words About the Platform

BitMEX, a Seychelles-based Bitcoin-denominated derivatives trading platform, is enjoying its spot as one of the largest platforms in the space. According to Similarweb, it has over 1.3 million active users and Coinmarketcap says there is around $3bn of daily turnover on average. These are big numbers, and what they tell us is that BitMEX is a company that is too big to fail - its influence on the whole market is literally bigger than that of Lehman Brothers on the world of Finance in 2008.

And yet, when you start looking into how their operations are conducted - you can’t help but notice that much of what they do is motivated by the worst kind of incentives. And when you begin to evaluate all the things that are just “wrong” - the sheer number of red flags is truly insane. Let’s just name them:

  • BitMEX is the ONLY big exchange to have “server overload”, an issue which hasn’t been resolved ever since it had originated - even though the average number of transactions per second it handles is by an order of magnitude smaller than that of other big exchanges

  • It is accountable to no authority

  • Produces next to zero documentation to increase its transparency

  • Omitted having an internal trading desk, the sole purpose of which is to trade against other customers

  • Lies about being having “most liquid product on the market” - the XBTUSD perpetual swap, when in fact (according to the people trading it), it is the most unreliable and dangerously unstable products out there

Now that we’ve named the biggest ones, let’s go through them one-by-one.

The “Anchor Market-Maker”, or What Seems to be the BitMEX Internal, privileged trading desk

A bit of backstory: in early 2018, rumours started going around the Crypto-twitter community about a so-called “internal trading desk”. At that point, probably enough people close to the company had known about what actually goes on in the office - and began to spread the word of mouth. The signs were clear that BitMEX had its own MM, that you could tell at least looking at the way they treat unaffiliated and independent market-makers.

As soon as the information was out in the open, BitMEX was quick to publish a blog post about its “Market Making Desk”. In it, the first paragraph informs the readers that the Terms of Service have been updated. Then, the CEO and co-Founder Arthur Hays proceeds to tell the readers about how they align the incentives, avoid conflict of interest and how separated and detached the trading desk is from BitMEX.

The red flags are all over this. First, the Desk has likely been around long before the April 30th, 2018 - the date when the blog post was published, and yet Arthur just seldom notifies everyone that it exists. Why wasn’t it shared earlier?

Second, there are some facts stated by BitMEX themselves which lead us to believe, that the trading desk does indeed enjoy “special treatment”. Before exploring those facts, we need to look at the next major red flag.

The “Server overload” Issue and why We Think it is Not Being Solved on Purpose

The problem everybody knows about, which has been around for years. Let’s look at it under a loupe. Presented below are the charts with Bitcoin price action measured during the same time-frame on BitMEX (on the left) and Bitfinex (on the right). Credits to @lowstrife on Twitter for this image.

Source: @lowstrife on Twitter

Bitmex server overload

What we see above, ladies and gentlemen, is a 2% spread on a 6% move. You market-bought ten contracts worth $10 at $11,825, you can sell them a second later for $11,570. Ask yourself: who is getting filled on these trades? Yes, you got it right - the Market Maker, who has made 2% on almost each and every one of the trades depicted above. Not only is the price unfair to you, but you also pay the difference directly to BitMEX.

Then, ask yourself the next question - why would they deal with the problem if their own trading desk can make insane profits by the market-making standards from just one move.Despite BitMEX telling us how “liquid” the XBTUSD product is, reputable large-size traders, all in unison, tell the exact opposite. Let’s look at one of the more recent examples - on August 26th, 2019, during a volatile spike, “the most liquid product” slipped by at least $100 more than any other exchange. Here, let’s look at how Bybit handled that spike in comparison.

Bitmex Wick

Although the difference is clear, some might argue it’s not that big - just one per cent, whatever. Well, @TheBootMex - a trader with positions as large as $8 million, has this to say:

Source: @TheBootMex on Twitter

Crypto Twitter on Bitmex

So, there’s that. Guess who provided liquidity at $10,805 and likely ate the cascading stops? That’s right - the BitMEX Market Making Desk.

But Wait, BitMEX Has So Many Transactions Per Second, We Should Be Glad the Servers are Working At Least Sometimes!

Actually, we thought about this argument and decided to check it. Unsurprisingly, BitMEX does not explicitly provide the TPS figure anywhere. What’s more - it seems, all mentions of how many Transactions per Second their trading engine is handling are avoided on purpose. For example, in this article, under the section “Trading During Overload”, a figure called “Total request counts” is provided:

Source: BitMEX Blog

Bitmex orders per second

So, can you see the number of “total request counts”? No? Well, it’s because it’s not there and was likely omitted on purpose.

After a few hours of trying to find any information on how many requests per second the BitMEX engine is processing, we’ve found two indirect ways to calculate it. First, from that same article, where it is stated that the core system is handling around 200,000,000 orders per week:

BITMEX matching core load

That’s about 330 orders per second, on average. Referring to this same article - “During peak trading times, BitMEX sees order input rate increases of 20 to 30 times over average!” - which is about 10,000 orders per second at the absolute extreme. In March 2019 that would be around 5,000 and in September 2018 - around 3,000.

Second, there is public.bitmex.com (which was hard to find, too), where you can download what seems to be a log of all the spread changes on all of BitMEX products for any specific day since the beginning of BitMEX back in 2014.

There, we’ve taken a look at the document named “20190824.csv.gz”, is presumably the log of all spread changes on all products dated August 25th, 2019. This is what the inside looks like:

Spread change on BitMEX

The document has 3,736,598 rows in it. Based on that, we can assume that the trading engine executed around 43 trades per second on average, during the 24-hour period.

Now that we’ve got two figures - number of requests per second (up to 10,000 under the heaviest load) and the average number of trades per second (43, if calculations are correct), let’s compare it to other exchanges who are very upfront about how many requests per second they can sustain and who rarely ever have any “server overload” issues.

  • Bybit, which is the closest competitor, is allegedly capable of processing up to 100,000 requests per second
  • Binance - mostly a spot trading exchange which has recently introduced margin trading can (again - allegedly) process as much as 1.4 million!

In comparison to these examples, which are on the surface, BitMEX with the 10,000TPS it’s capable of, seems like a dwarf. This begs a question - having as much money as they do - how come the problem is still there, after nearly three years since its origin?

The answer is on the surface - it is simply more profitable not to fix it. Who wouldn’t let their own market maker earn on insane spreads daily? And while BitMEX pushes the narrative of having “The most efficient liquidity pools” fifty times a week, its liquidity is among the worst in the moments of volatility. Or better still, saying it is a “Peer-to-Peer Trading Platform” in its overview, while a very large portion of its trades involves their own market maker, which is not P2P. More like BitMEX-to-Peer.

It is in their best interest to exercise wrong practices and provide a terrible user experience. Not to mention that the “Server overload” issue is the main driver of the bloated Insurance Fund, which is a whole different topic for discussion.

The Prerequisites for the U.S. COMMODITY FUTURES TRADING COMMISSION (CFTC) Investigation

On October 22nd, 2018, a user under the nickname Hasu has published an excellent Medium piece where he explored the biggest concerns about BitMEX at the time.

The three big arguments rumoured at that time were:

  1. Bitmex trading against all of its customers
  2. BitMEX weaponizing its “Server issues”
  3. Monetization of position liquidations through the Insurance Fund

All the deeds mentioned above can very easily be considered a fraud, which is a serious offence and could lead to the closure of the platform. And on July 19th, 2019, Bloomberg has made public the information about a “Months-long probe by the Commodities and Futures Trading Commission” focused on whether BitMEX had defrauded American citizens.

On that same day, about 40% of the liquidity just disappeared from the books of the exchange. Traders like @ThinkingBitmex have found it to be a big issue:

ThinkingBitmex unhappy with the liquidity

Yes, you heard it right - the books have become thinner by about 40% (and stayed this way ever since) right after Bloomberg announced a CFTC investigation.

What do you think happened there? Well, we think that upon hearing the news, BitMEX has turned off their privileged trading desk, which provided a major portion of the liquidity, and rushed to eliminate any evidence of it having a conflict of interest.

If this were to be true - and we all know it’s very likely the case here - the CFTC probably already know about all the fraud that has taken place. Which is why we think this show is coming to an end.


To sum up in a few words: BitMEX has its own trading desk, the existence of which has been purposefully omitted and which enjoys special treatment and benefits from “Server Overload” issue, all while trading against BitMEX customers and having Arthur Hayes do nothing about it.

Now, we are building BitQuant - a multi-product exchange with commission-free perpetual swap trading and the highest standards of integrity in the process of development. Actions speak better than words and as such, brace yourself for the upcoming impact from our launch by the end of 2019.

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