U.S. regulatory authorities last Thursday brought a series of civil and criminal charges against BitMEX. Since then 75,985 bitcoin were withdrawn from the Seychelles-based crypto exchange.
BitMEX is a peer-to-peer cryptocurrency exchange and derivatives trading website. It was founded in 2014 in Hong Kong but is currently based in the Seychelles. BitMEX offers a variety of trading services, including margin trading with up to 100 times leverage (meaning that a deposit of $1,000 will result in a trader having the ability to trade $100,000 worth of BTC) and futures trading (allowing investors to bet on the future prices of BTC).
The platform only handles prices in bitcoin rather than fiat currencies, meaning that all gains and losses are in BTC. In 2016, BitMEX became the first Bitcoin denominated futures contract on a Chinese A Share index.
On Oct. 1, 2020, the U.S. Attorney’s Office for the Southern District of New York unsealed a criminal indictment against several BitMEX executives, alleging they failed to comply with the Bank Secrecy Act by allowing U.S. residents to trade funds on the platform. Specifically, they said the exchange did not conduct know-your-customer (KYC) checks, which opened the door for potential criminal activity.
This is a big deal, as BitMEX is one of the industry’s largest trading platforms. In 2016, it introduced a derivative known as perpetual swaps (futures that don’t expire) to the market, with up to 100x leverage, and for many years was the market leader in terms of derivative volume and open interest.
“BitMEX touts itself as the world’s largest cryptocurrency derivatives platform in the world with billions of dollars’ worth of trading each day. Much of this trading volume and its profitability derives from its extensive access to United States markets and customers,” the filing said. “Nevertheless, BitMEX has never been registered with the CFTC in any capacity and has not complied with the laws and regulations that are essential to the integrity and vitality of the U.S. markets.”
BitMEX is based in the Seychelles, which you guessed it, is not just because of the weather. The Seychelles are known for being a tax haven, and more importantly a near free pass on crypto regulations.
“One defendant went as far as to brag that the company incorporated in a jurisdiction outside the U.S. because bribing regulators in that jurisdiction cost just ‘a coconut,’” said Assistant FBI Director William Sweeney Jr. in a statement. “Thanks to the diligent work of our agents, analysts, and partners with the CFTC, they will soon learn the price of their alleged crimes will not be paid with tropical fruit, but rather could result in fines, restitution, and federal prison time.”
Traders rapidly worked to move their assets away from BitMEX, which could be in a long, drawn-out battle with the U.S. regulators. Since the announcement happened midday on October 1st, most of the bitcoin was actually retrieved on October 2nd. A breakdown of daily withdrawals from BitMEX shows that 5,026 BTC were withdrawn on October 1st; 57,571 BTC on 10/2; and 11,547 BTC on 10/3.
Many people were really shocked that the CTO could get arrested. This was not someone who was part of the client facing side of things, and the fact that a developer can get arrested represents an escalation in the crackdown on cryptocurrency operations in the U.S.
It gave the people in this industry who have been playing fast and loose a good reason to worry. All of a sudden it doesn’t matter where you come from, or where this company is technically based – if you are money laundering on U.S. soil, you can get arrested.