Four years ago, when Seychelles-based cryptocurrency exchange BitMEX announced a new product called "perpetual bitcoin leveraged swap," few traders in nascent digital asset markets could have predicted what impact the mysterious roll-out would have on the industry.
But this tool has proved hugely popular and successful among high-risk gambling traders, taking BitMEX to the top of the world's largest cryptocurrency exchanges.
Now, digital asset analysts and Investors are rushing to assess the damage in the market following the move on Thursday by US authorities that filed a series of regulatory and criminal charges against BitMEX and its CEO, Arthur Hayes.
How will the BitMEX allegations affect the crypto market?
One of the expected changes could be lower market volatility, as BitMEX's perpetual swaps were controversial for exacerbating price swings. An insidious question, in fact, is whether some BitMEX customers in the US will be forced to close their accounts and possibly sell their bitcoin.
This could put downward pressure on prices. Bitcoin fell 4% after the allegations were released on Thursday, but a few hours later, prices returned to a range where they have been standing for several weeks.
BitMEX staff said they "strongly disagree" with the allegations and intend to defend themselves vigorously. In a Telegram channel, the company claimed that its trading platform is functioning normally and that all funds are safe.
Traders were well aware that BitMEX was under scrutiny and may have moved to anticipate any crackdowns, according to digital asset firm QCP Capital. According to QCP data, BitMEX has around 190.000 bitcoins in its vaults, worth around $ 2 billion at current prices, with another 36.000 bitcoins in an insurance fund.
The lost of concurrents
Many other cryptocurrency exchanges in recent years had copied the BitMEX model, implementing bitcoin trading tools with a leverage of 1: 100 or higher. And some traders have moved into those alternative areas, causing BitMEX's share of the overall bitcoin derivatives market to decrease.
This could reduce the impact on the market of any further customer penalties in the wake of Thursday's allegations, said John Todaro of analyst firm TradeBlock. "Two years ago, this would have been catastrophic, because BitMEX represented a huge percentage of all leveraged trading," David Weisberger, co-founder and CEO of CoinRoutes Inc, said in an interview.
"Now, there are some alternatives to BitMEX and many of them have always been stricter about trading or not allowing US clients to trade on those platforms." A snapshot of bitcoin futures trading on Thursday ranked BitMEX fourth among exchanges by 24-hour volume, behind Binance, Huobi and OKEX, according to data site Skew.
