The Art(hur) of Bitmex's Hazy(es) Past

Who is Arthur Hayes?

Arthur Hayes is the infamous American banker, entrepreneur, derivative trader, Bitcoin advocate, and a fintech pioneer.

He was the CEO, and co-founder of BitMEX along with Ben Delo, and Samuel Reed.

BitMEX was founded in 2014, the parent company is HDR Global Trading. Hayes is the former CEO of BitMEX and parent company 100x Group. BitMEX is a digital asset trading platform which has traded trillions of dollars on the cryptocurrency exchange. BitMex is based in Seychelles. Hayes is based in Hong Kong. In October 2020, Hayes stepped down as CEO of BitMEX.

But the Federal Gov. think off him differently

They described Arthur Hayes differently: a man who “flouted” the law by operating in the “shadows of the financial markets.”

Hayes’s indictment was unsealed on 1st October 2020.

The U.S. Attorney for the District of New York indicted Hayes, Delo, and Reed, along with Gregory Dwyer, on federal charges of violating the Bank Secrecy Act and conspiracy to violate the Bank Secrecy Act.

And on February 24, 2022 Department of Justice have them under same federal charges.

But what authorities missed about Arthur Hayes Bitmex Shady Days ?

  • Trading against his customers.
  • Preferential rights to himself and his Market Maker at that time Alameda Research.
  • Market Manipulation

Here we will start to debase step-by-step his bad behavior, smug, criminal mind with a huge banking experience on which to pray on his new and unknowing customers.

Bitmex In-House Trading Desk

First of all let’s learn about the basics as the term ‘Index Price’, the price you see on Bitmex is not dictated by your trades, but rather by the movements on Bitstamp, Bitfinex, FTX, Coinbase, Gemini and Kraken.

Each with different ‘power’ or technically said ‘weight’. Currently the biggest power to move Bitmex price it is in Coinbase with 40% and FTX with 25%, while the rest have between 3-13%.

But when they first launched this ‘weight’ was distributed only between GDAX (Coinbase Pro) and Bitstamp each with 50% index ‘weight’.

All this is designed to try and give some allure of fairness to the unwitting public.

Internally operating inside this old relic that once was a derivates beast that is Bitmex - is a fully manned trading desk, working essentially as a covert subsidiary which can monitor the entire order book, as they have direct API / Backend server access and are employees of the company, so are privy to any dark pool data.

Not only should this make you wince, but please keep reading. It doesn’t stop there.

You open long, they open short. Well doesn’t matter, right?

The market is on a weighted index across two exchanges and Bitmex is just following that indexed price, everything is fair and square.

Wrong. This is the perfect situation for manipulation, Bitmex Trading Desk can as well execute orders on Bitstamp and Coinbase Pro affecting the indexed underlying assets and move those books.

But they as well royally shaft you with their XBTUSD Perpetual Contract, how?

It is hidden in plain sight, if you are wily enough to decipher it, if we take a direct quote from the Bitmex documentation it’s clear as day what’s going on here.

A trader goes long 50,000 contracts of XBTUSD at a price of 10,000. A few days later the price of the contract increases to 11,000.

The trader’s profit will be: 50,000 * 1 * (1/10,000 - 1/11,000) = 0.4545 XBT

If the price had in fact dropped to 9,000, the trader’s loss would have been: 50,000 * 1 * (1/10,000 - 1/9,000) = -0.5556 XBT. The loss is greater because of the inverse and non-linear nature of the contract. Conversely, if the trader was short then the trader’s profit would be greater if the price moved down than the loss if it moved up.

Remove the fancy wording, in plain english.

Profit is 0.4545, Loss is -0.5556 .

The odds are stacked against you.

That means for every loss trade you will need 1.4~ profitable trades to breakeven.

So even conservative trading with a limited risk exposure has to outperform by a factor of nearly a trade and a half.

So unless the market is trending strongly, statistically you will be unprofitable more often than not in consolidating range bound markets. Just because of fee structure and the 1.4 ratio.

So to rationalise these odds - it was impossible to enter a coin flip on Bitmex, because Bitmex owned 60% of the side you were betting on due to fees and just how it works.

There were no precautions, no warnings or alerts that protect the investors.

Ultimately they just wanted your Satoshi’s, and that’s obvious.

So you are long, they are short.

They can see your stop loss.

They can move the underlying.

When I asked Greg Dwyer where their Trading Desk is offering “liquidity” to the market, his answer was “In the less liquid altcoin instruments”.

Now Greg Dwyer is on the run from authorities somewhere in Bermuda fighting extradition and waiting for his trial in Oct 2022. He faces up to 5 years of jail.

Greg Dwyer approached me after I personally moved big amount of Bitcoin in order to open a LONG position at 5900-6000$ range of 10M notional size using a 5X leverage.

Bitmex in-the-hood know your 'whale'.
Bitmex in-the-hood know your 'whale'.

One month later I got their greeting “Liquidation Order Placed”

Followed by the actual liquidation.

That is how easily you could get hunted by their Trading Desk.

OK, OK But these are claimless accusations, you have no proof they moved the Index Weight price, WRONG. Stay with me if you want to know exactly how they have done it.

Preferential treatment to Bitmex Trading Desk

First of all, let me introduce you Bitmex withdrawal system that is present and ALWAYS was unchanged.

The cutoff time for Bitcoin withdrawals is 13:00 UTC. Shortly after that, Bitcoin will be sent to the address you specified. BitMEX will be increasing the number of withdrawal times in the near future.

Source - 2015 Archive Bitmex FAQ Page:

Source current Bitmex withdrawal terms:

That means that withdrawals are processed between 13:00 UTC and 14:00 UTC.

Here comes in play their manipulation by using their indexed underlying assets and move those books.

Screenshot from Bitmex Trollbox when Arthur Hayes was telling to one of his moderators to Run the stops of the remaining 'plebs' (his customers).
Screenshot from Bitmex Trollbox when Arthur Hayes was telling to one of his moderators to Run the stops of the remaining 'plebs' (his customers).

On 15 November around 03:30 UTC, 4 withdrawals from wallets get sent straight to

Biggest of them being 250 BTC with a total of 474 BTC sent from Bitmex to Bitstamp in the ‘middle of the night’ as per UTC time.

As well a day before on 14 November 14:03 UTC they as well sent 500 BTC to Bitstamp.

Resulting in a cascade on Bitstamp that pushed the underlying Bitmex index down.

They didn’t stopped just at this specific date. They kept doing it over and over until 2019. That is the moment when I presume the heat on Bitmex had started.

Here are other examples in the case of Bitmex Trading Desk → Bitstamp.

09-01-2019 - 60 BTC at 18:00 UTC

11-06-2019 - 157 BTC at 17:07 UTC

And so on and so forth they are many, many transactions like these that were sent out way after their cut-off time of 13:00 UTC. And outside their sending window of 13:00 - 13:59 UTC.

Here are examples of normal withdrawals from Bitmex → Bitstamp on 15-07-2019.

Last one being at 13:44 UTC.

After 4 hours aprox. on the same date again suspicious transactions are sent out.

At 18:40 UTC → 400 BTC where sent out again from Bitmex Trading Desk → Bitstamp.

As for my research I’ve filtered only transactions between Bitmex and Bitstamp.

I believe that as we reached this point, you my reader have no doubt of what happened behind Bitmex and their reign over 2015-2019 Bitcoin market price action.

Sir, what about Alameda preferential rights? You teased us too much!

Well I had to offer the big picture of how things where working before Alameda Research started their raise, yet too see their fall hopefully in future.

Alameda Research LLC got incorporated on 21-11-2017 and received the ATTESTATION to trade cryptocurrencies on 06-12-2017 between that date and 10-12-2019 they made staggering profits of 5244 BTC.

Bitmex Leaderboard on 10/12/19
Bitmex Leaderboard on 10/12/19

How they have done it? Well pretty simple as you can see they had 2 accounts. and Alameda Research. So they traded with 2 entities both being in TOP 10. One being their British Virgin Island entity and one their US Entity.

They literally cornered the market and cumulative would have put them on NO. 1 in Bitmex leaderboard. So how Alameda Research had the EDGE to reach NO 1 ‘Trader’ on Bitmex? With a bit of help from mighty Arthur Hayes.

Alameda Research had as well withdrawn rights and their withdrawal requests were processed faster then any BitMex customer.

This is a Bitmex withdrawal sent to Alameda Research wallet at 10:51 PM on 20 June 2019. Two hours ahead any BitMEX customer.

This Alameda Research wallet that was tagged and identified was created in December 2018 and is still active and working on the markets as they please. It is just one of their many wallets.

Between December 2018 and Alameda Research - Bitmex they deposited 21K BTC and withdrawn 82K BTC in total.

All this with the help from Arthur Hayes, yet he haven’t realized that he was creating his own competition. While Samuel Benjamin Fried-Bankman was slowly building his empire.

  • Alameda holds BitMEX leaderboard
  • Alameda starts own exchange FTX
  • FTX self-funded by Alameda
  • FTX liquidity provided by Alameda
  • Alameda has access to all the books
  • FTX launches a boatload of products
    (Innovative but mostly illiquid)
  • FTX acquires Blockfolio

More about SBF (Samuel Benjamin Fried-Bankman) and Alameda Research, will discuss in my next article on which I have to dedicate entire post in regards of his raise by early market manipulation and edge against retail and professional traders as he was the only one with ‘good ties’ that allowed him to move funds and liquidity where others couldn’t capture that edge by default.

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