BitMEX Crash Drives Traders to Derivatives Exchanges That Can Take the Strain

The world’s leading cryptocurrency derivatives exchange appears to have peaked. BitMEX, the Seychelles-registered exchange where much of the market’s bitcoin futures trading takes place, has endured a torrid year. In the wake of an embarrassing data breach, which saw the emails of 30,000 users leaked, BitMEX has suffered service disruptions that have left traders seething after the exchange went down on bitcoin’s most volatile day in eight years. To compound its woes, BitMEX has just fallen behind Binance Futures for notional volume for the first time, and is facing fierce competition from rivals such as Bybit and OKEx.

DDoS, Downtime, and a Dwindling Insurance Fund

BitMEX has had better weeks, to put it mildly. In fact it has had better years, for 2020 is shaping up to be something of an annus horribilis for Arthur Hayes’ derivatives platform. Bitcoin’s flash crash last Thursday triggered more than $700M in long liquidations on BitMEX and left traders complaining bitterly. In pinpointing what went wrong, one analyst wrote: “Bitmex ceased to be a fully functioning exchange for about 18 hours…Completely disconnected from the rest of the market.”

To stop the cascading liquidations that resulted in bitcoin flash crashing to under $4,000, BitMEX is accused of mimicking the stock market and hitting its own kill switch, effectively canceling trading under the guise of “unexpected downtime.” Despite having years in which to prepare for events like this, and optimize its systems accordingly, BitMEX was simply unprepared, with its liquidation engine struggling to process the volume of longs once BTC fell below $5,000. Had the exchange not gone offline, it is predicted that the remaining $20M of buy orders on its books would have been absorbed, sending BTC’s price to zero.

Acknowledging the problems, on March 15 Arthur Hayes tweeted: “I know there are questions and concerns following the events from the past 72 hours. We have been listening and my team has been gathering the facts. We will be addressing these questions and concerns transparently and comprehensively over the coming days.”

Bybit and Others Prosper as Traders Seek Alternative Exchanges

Most other derivatives exchanges, admittedly operating under a lighter load than BitMEX, seem to have handled Black Thursday’s market rout, remaining operational and suffering no degradation of service. For some BitMEX regulars, last Thursday’s events were the last straw, providing the impetus needed to seek out alternative trading venues. Popular crypto Twitter trader Romano, for instance, urged his followers to seek out derivatives venues such as Bybit or FTX.

The same day, Bybit CEO Ben Zhou boasted about his exchange’s performance, tweeting the following 24-hour stats:

BTC orders: 8689831

BTC Matching Engine peak: 3056/s 

BTC Message peak:  837207/min

Market Data Push size:  4.2 TB (after compress)

System downtime : 0

In addition to its technical capabilities, Bybit has flaunted its 24/7 customer support and the reliability of its USD perpetual swap contracts. While BTC is its most popular product, the exchange also enables leveraged trading of ETH, XRP, and EOS. Bybit provides detailed data pertaining to its insurance fund and perpetual contracts, including the current BTC and USD funding rate for margin traders. 

The other beneficiary of BitMEX’s bugs is likely to be FTX.com, whose range of bitcoin derivatives products has attracted praise, even if users retain some reservations about its web and mobile trading interface.

With market volatility virtually assured in the weeks to come, derivatives exchanges will be tested more than ever. While BitMEX loyalists will be praying that Arthur Hayes and team can shore up the platform’s architecture, many traders have decided their fortune is best lost and won elsewhere.