Open Interest on BitMEX Falls Amid Regulatory Troubles With U.S. Authorities

Open interest (OI) on the BitMEX cryptocurrency derivatives exchange fell below its year-to-date low amid problems with U.S. regulators.

According to Arcane Research analysts, in just a few hours the OI on BitMEX dropped to 61,869 BTC. A similar reading was observed in April this year.

The open interest (BTC) on BitMEX’s bitcoin derivatives just hit a yearly low of 61,869 BTC following the announcement of the CFTC charge on the exchange.

The former yearly low was painted on the 30th of April when the open interest bottomed at 61,975 BTC. pic.twitter.com/f5dENV3CQZ

— Arcane Research (@ArcaneResearch) October 1, 2020

On October 1, it was revealed that the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice filed charges against the BitMEX cryptocurrency derivatives exchange and its owners, including co-founder and CEO Arthur Hayes. They are accused of operating an unregistered trading platform and violating the Commission’s rules, including anti-money laundering and Know Your Customer (KYC) measures.

Soon after this information, the OI on the XBTUSD perpetual swap fell by 11%.

The dramatic impact of the CFTC announcement becomes clear when zooming in on the hourly open interest data from the XBTUSD perp.

The last hours has seen the OI of the XBTUSD perp (measured in BTC) fall by 11%.

Traders are definitely closing their positions on BitMEX. pic.twitter.com/PeLGIl82JV

— Arcane Research (@ArcaneResearch) October 1, 2020

“Traders are definitely closing their positions on BitMEX,” Arcane Research experts noted.

The open interest on BitMEX continued to fall. To date, the depth of the decline has exceeded 16%.

Update:

The open interest on the BitMEX Bitcoin perp has fell further throughout the night, and reached 45,112 BTC at 07:00 (GMT+2).

The open interest (measured in BTC) is currently down 16% since the CFTC announcement. pic.twitter.com/GTnI291Enu

— Arcane Research (@ArcaneResearch) October 2, 2020

The number of bitcoins held at BitMEX addresses has been steadily decreasing since the March market crash.

Data: Glassnode.

According to Chainalysis’s chief economist Philip Gradwell, two-thirds of this amount went to exchanges, with the remainder to unhosted wallets. He also notes that last week total inflows to crypto platforms amounted to 65,000 BTC.

24,577 bitcoin has now been withdrawn from BitMEX, 65% to exchanges with the remainder to unhosted wallets. Total inflows to exchanges averaged 65k bitcoin this last week, so BitMEX withdrawals are adding 25% more liquidity already and more will come with the 08:00 UTC withdrawal

— Philip Gradwell (@philip_gradwell) October 2, 2020

Spurred or not, Gradwell later reported a further withdrawal of 7,425 BTC from BitMEX, a third of which went to the Gemini bitcoin exchange.

And another 7,425 bitcoin withdrawn from BitMEX, one third to Gemini.

I’m not turning into a full time BitMEX withdraw tweetbot but I’m assuming this is the 08:00 UTC announced withdrawal, although more may come in subsequent blocks

— Philip Gradwell (@philip_gradwell) October 2, 2020

According to The Block analyst Larry Cermak, BitMEX still held more than 182,000 BTC on its wallets until recently. He added that most customers had not taken any active action. Cermak reached this conclusion amid what he viewed as a modest decline in open interest.

BitMEX now holds about 182.6k BTC. About 24.6k has been withdrawn since the announcement yesterday. A lot of customers still staying there and OI hasn’t declined that much. BTC perp lost $110M (14% decline) of OI and ETH by $60M (33% decline). https://t.co/fKEfuHacUG

— Larry Cermak (@lawmaster) October 2, 2020

Earlier, Cermak noted that BitMEX began processing withdrawals at an unusual time — 18 hours before the standard withdrawal window. Users speculated that the exchange’s management was enabling withdrawals before its seizure.

Letting people out before it’s all seized and tied up in legal proceedings for years. That’s actually nice of them.

— RydesaurusRex (@RydesaurusRex) October 1, 2020

Analyst Alex Krüger believes that, in the long run, BitMEX’s troubles will positively affect American exchanges and over-the-counter trading.

Bitmex news are short term bearish, long term bullish.

Assume the CFTC & DOJ bring Bitmex down. The absence of Bitmex may then result in US exchanges and OTC desks becoming markets of «significant size», sharply increasing the odds of the SEC approving an ETF.

— Krüger (@krugermacro) October 1, 2020

“News about BitMEX is bearish in the short term, but bullish in the long term.”

Krüger does not rule out that this could hasten SEC approval of Bitcoin-based exchange-traded funds (ETFs).

Recall, in May The Bitcoin Manipulation Abatement LLC filed a lawsuit against BitMEX, accusing the exchange of conducting unlawful activity in the United States, manipulating the cryptocurrency market, fraud, unfair business practices, money laundering, and the illegal handling of raised funds.

In August BitMEX introduced new verification rules, under which users must confirm their residential address and provide identification documents.

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