BitMEX is currently the largest Bitcoin Exchange according to trading volume, and BitMEX research is going pretty good regarding market research, but is BitMEX really that ethical? Let us explore.
Registered in Seychelles, BitMEX is not required to report to any regulator. This article is sourced through various articles submitted on Medium, Reddit and social media like Twitter.
Does BitMEX trade against its Customers?
Before I start to answer this question, let us understand the concept of Market Making. Market makers are the one responsible for filling up the order books. They also buy and sell continuously, proving the necessary liquidity to the market.
Market makers quote on both sides of the order book, that means both the buy side and the sell side. If their buy order gets executed, their immediate plan is to execute the sell order as well, thus acting as a neutral market maker. So a market maker profits from a spread instead of up-down movements of the market, in return offering quick liquidity to the users.
The question is thus, is BitMEX acting as a neutral market maker (which is a positive service to its customers) or not.
On 30th of April, 2018, MitMEX updated its Terms of Service. It says:
“BitMEX has a for-profit trading business that, among other things, transacts in products traded on the BitMEX platform. The trading business primarily trades as a market maker”
BitMEX also states that its profit does NOT come from trading:
BitMEX claims that its goal is to breakeven regarding profit and loss and that they make money by the service fee paid by the business. But unfortunately, there is no way to check BitMEX’s audit report as they have never released an external audit of their business.
BitMEX’s legal counsel, Sullivan & Cromwell was silently removed from their blog post from April. It’s earlier post stated this:
Later in May 2018, the updated post said this:
It is a possibility that Sullivan & Cromwell separated from BitMEX because it had issues with the exchange’s plans.
BitMEX’s Desk should not be allowed to trade freely on the exchange
Let’s assume the owner (or owner’s employees) of an online casino is allowed to play its own game, can he resist from not looking at everyone else’s cards?
Same goes with an online Bitcoin exchange. If BitMEX’s desk is allowed to trade on their own exchange freely, we can expect a similar outcome. This gives “extra information” to the desk, which is not available to all other customers. While some information is available to all the customers, for example, the order book or the past trades, additional information like the degree of leverage of each position or the price at which it will run out of margin is private and is only available to the BitMEX’s desk.
In a blog post, BitMEX has denied that it gives this explicit information to its desk, but BitMEX has not agreed to give out equal information to all the customers especially the two mentioned above.
Many users suspect that BitMEX gives unfair advantages to its desk. What are your views on the above? Comment below and let everyone know.
