It looks like Bitmex, once one of the most popular and successful Bitcoin leverage exchanges, is in big trouble. They and others like them are all falling under the investigative eye of the US authorities. It’s possible that their days are numbered, and the money is fleeing the exchange like rats from a sinking ship.

This could be a trying time for the company’s controversial CEO Arthur Heyes, who launched the exchange in 2013, and it’s not just because of his classic PR blunders of recent times. The US Commodities Futures Trading Commission is investigating them for doing business with its citizens, despite being illegal. Registered off shore in the Seychelles, a little island off Africa, Bitmex has its operations going among clients from numerous countries including America, simply by the use of VPN which bypasses any online geo-tracking that may be in place in such instances.

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It took a few years but Bitmex and its Bitcoin margin trading site really gained popularity in 201//8. Even before this current scandal they were sued though, for trading with US customers, but that case was eventually dropped by the judge. Risk takers, who seem to enjoy the high stakes of using these financial tools of dubious repute, going for the 100x leverage on what Heyes himself said in the PR blunder speech was “the most volatile asset it the history of the world”.

The first PR disaster he inadvertently drew upon himself was when he described the potential clients or retail traders he wanted to lure in “degenerate gamblers”. That really damaged his reputation on crypto twitter and the like. Added to that was the now infamous “Tangle in Taipei”, a showdown between Heyes and Bitcoin bear Nouriel Roubini a few weeks ago.

Roubini, aka Dr Doom, in a debate with Heyes, was the highlight of the Asian Blockchain Summit (ABS 2019), which is punted as “the biggest international blockchain event in Asia”. The good doctor became quite personal and derisive, attacking the biggest leverage trading exchange for Bitcoin in the world. It got messy and since then Roubini has been the one behind the current investigation by the US CFTC.

The on-stage debate was viewed by a large audience and the news spread far and wide, particularly when Roubini released this tweet accusing Heyes of a “rekting racket” guilty of evasion of AML/KYC, front-running, insider trading, massive scale money laundering and gouging of clients - which is basically all the worst crimes that traders and the finance sector use all the time anyway.

Regulation wars

It looks like the regulation wars are upon us. Just how well Bitmex and others survive will depend on how well they have set themselves up internationally from their Seychelles island safe haven. They may weather the current storm but they will be weakened by it. Soon after the dubious debate and announcement of investigation, millions of dollars started leaving the Bitmex exchange. In fact $85 million poured out while only $12 million came in during the same time period. Over the past month the outflow has far outpaced the inflow, though it has stabilized somewhat since.

In one sense it looks like US investors should be worried and they probably are, resulting the capital exit. Popular crypto twitter personality, @WhalePanda doesn’t see it as a cause for concern, though did admit that it is a reminder not to keep too much of your holdings on the exchanges if you’re not trading it. If you are using Bitmex, even if it’s through an illegal VPN to mask your origin in America, you still should be concerned, now while the investigation is going on. It could get so bad that funds actually start being confiscated, and that’s your retailer funds, from the exchange, worst case scenario.

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One way or the other, it does indicate some serious red flags popping up at the moment in the Bitmex saga, as the whole shady business of leverage trading is put under the spotlight. In a sense it’s much like when poker first emerged online and there was so little regulation for online gambling back then. Regulation did eventually get put in place and now it’s tightly controlled. Nobody likes KYC, especially in crypto but this may well be what is needed to legitimise the industry further in the long run.

#whereisarthurheyes

Since this whole saga, Arthur Heyes has been noticeably absent from twitter for the past two weeks or more. Interestingly the overall trading volume is down on other exchanges lately, like the massively popular Coinbase, by 54% and on Bitmex by 51%. If the regulators find them guilty, they could receive a substantial fine, which they could probably handle considering their 30k Bitcoin in their insurance fund, allegedly.

Conclusion

To conclude it looks like the crytpo space is going through some changes as US regulation finally comes in. Do you think regulation is a good thing in crypto or not? As we continue to ask #whereisarthurheyes, could this be the end of a fly-by-night opportunist exchange or will Bitmex live to fight another day, facilitating its 100x leverage out of the Seychelles in Africa?

Leave your thought in the comments below.