bitmex futures premium investors
Source: istock photo

Investors Withdraw as BitMEX Futures Become High Risk

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BitMEX, once the second-largest crypto exchange by market capitalization, is losing its ground rapidly. The exchange was recently charged by the regulatory body Commodity Futures Trading Commission (CFTC) for not complying with its regulatory laws. BitMEX's three founders and one other executive were accused of illegally operating an exchange. Though the defendants deny all the accusations, the exchange's public confidence has been marred.

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The latest BitMEX news includes a "high-risk" warning from Chainalysis.

BitMEX offers its customers and investors trading products in the form of futures contracts that can be settled in cash. Following its current case with the CFTC, there have been massive withdrawals of funds, as investors fear trading on the exchange platform could pose a high risk. The exchange also received a high risk warning from the cryptocurrency investigations firm Chainalysis.

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BitMEX futures premium market has been most affected, as traders opt for not buying or selling, to avoid exposure to the risk surrounding the exchange. Though the bitcoin futures price is low, making any deposit is still inadvisable because the exchange is facing solvency risk. It is likely the fund will not recover.

Premium investors are unwilling to participate, though BitMEX contracts are much cheaper, because traders fear the risk of BitMEX losing all its money. Bitcoin futures price action is lagging behind but traders do not have the drive to participate. Liquidity is reduced and withdrawals increase, causing BitMEX price to drop on other exchanges.

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What are the CFTC charges against BitMEX?

On Thursday, October 1, the CFTC brought a charge against the Seychelles-based crypto exchange. The commission filed a civil action against BitMEX for operating an unregistered trading platform and violating its regulatory laws. This report triggered massive withdrawal with over 40,000 bitcoins transferred from the exchange to other exchanges and private wallets. 

cftc commissioner brian quintenz
Source: CFTC.gov

According to the report, the majority of the funds went to other big exchanges like Gemini, Kraken, Coinbase, and Binance.

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What are Bitcoin futures?

Bitcoin futures are cash-settled contracts that allow investors to have access to bitcoin trading without owning or holding the asset. BitMEX offers future contracts to its investors. It does not require traders to hold 100 percent of the collateral in the underlying asset as a margin. BitMEX calculates the Premium Index and Interest Rate every minute and carries out the  Time-Weighted-Average-Price (TWAP) for minute rates.

BitMEX futures contracts trade at a high premium. A trader may buy on the underlying spot market and sell, the trader will wait again for the market to go back to the same price, and until settlement, that is how the market will keep trading at a premium until settlement at 12:00 UTC on Friday.

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What are the best crypto exchanges?

As the crypto industry grows, many exchanges are springing up. Determining the best exchange for you depends on your desired activities and goals, but based on the Coinmarketcap report, the best crypto exchanges include Binance, Coinbase Pro, Huobi Global, and Kraken.

Binance is the largest by market capitalization and supports most of the traded cryptocurrencies. It has over $6 billion in traded volume and average liquidity of 538. 

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