Month: July 2019

CFTC Investigates BitMEX

Bitcoin exchanges have difficult times in the USA. In a lot of cases, strict regulatory requirements ensure that crypto and blockchain companies censor themselves from making their platforms accessible to Americans. This is also the case with BitMEX – at least that’s what people thought – up to now.

Bloomberg Report About CFTC Investigation

The Bloomberg magazine reported that the CFTC has been investigating the crypto options exchange for some time now. The investigations focus on suspected cases according to which BitMEX did not consistently enforced the exclusion of users from the USA. The CFTC accuses the trading platform of inadequate KYC measures.

This goes against statements by Joe Coufal, responsible for PR at BitMEX, according to which “BitMEX has proactively banned all US customers since 2015”.

BitMEX particularly popular in Asia

BitMEX is registered in the Seychelles. However, the platform is available almost all over the world – with the exception of the USA, North Korea, Iran, Syria and Sudan. Especially in Asia, the options exchange enjoys some popularity. On BitMEX, futures traders can leverage Bitcoin profits (and losses) one hundred times.

Most recently, BitMEX has been criticised for favouring insider trading. During a debate with BitMEX CEO Arthur Hayes, Bitcoin boss Nouriel Roubini, also known as “Dr.Doom”, accused the stock exchange of acting against its customers. A video of this debate was initially kept under lock and key, which prompted Roubini to fire again against Hayes and his company, but has since emerged (in edited form).

Already in August 2018 there was a DDoS attack on the futures trading platform. But instead of issuing warnings to the users, there was talk of maintenance work. Many traders were unable to liquidate their positions and posted losses.

The future will show what consequences the CFTC investigations will have for BitMEX. But what we can already see is that the order books are getting thin as some market makers left the platform:

The Art of Liquidation: Part IV – The Invisible Tentacle of the Markets

Welcome to “The Art of Liquidation: Part IV”. In the last few episodes we learned how various crypto derivative exchanges handle extremely large liquidations, which are potential threats to the market. OKEx and Poloniex socialize the losses, Bitmex has an insurance fund that has become systemically relevant itself due to its sheer size. What is Kraken’s approach?

Maintenance Margin on Kraken

Let’s look at the liquidation model of the exchange “Kraken”. Unlike the exchanges previously examined, Kraken does not have a P2P margin model. It is not other users who borrow the funds but Kraken itself. If the maintenance margin falls below 40% the position will be liquidated automatically. At 80% there is a margin call and Kraken reserves the right to liquidate below 80% in extreme market situations.

Such extreme situations would be, for example, massive volatility, which is not uncommon on the crypto market. Since Kraken provides the funds itself and has to carry the losses, it is understandable that they operate a tight maintenance margin system. Otherwise large liquidations would be endangering Kraken itself.

The Instant Margining System

The risk for leveraged futures on the platform is managed via the so-called “Forced Liquidation” process in the “Instant Margining System“. If an extremely large position is liquidated, which bursts the Oder books, it is called “Unfilled Liquidation” and triggers the following: The Unfilled Liquidation is transferred to a “Liquidity Provider”. This is a market maker who has unlimited liquidity and can therefore handle liquidations of any size.

This is an emergency mechanism that only triggers after the order books have been emptied. According to Kraken, this happens on average every 10,000 hours, i.e. less than once a year (about every 420 days).


So we see Kraken is not organized like other platforms in a P2P manner. It provides leverage and handles large liquidations with extremely liquid market makers.

It makes sense that Kraken itself would set a limit on positions that would exceed even this extreme liquidity, but that would probably be extremely high sums (probably at least eight or nine digits). One could categorize the Kraken model as centralized liquidation, unlike the other exchanges.