BitMex Seemingly Trading Against its Own Customers, Price Manipulation in Plain Sight

One of the biggest crypto exchange, which offers margins of 100x and a number of derivatives, has seemingly admitted to price manipulation and trading against its own customers with the activity carried out in broad daylight since April, yet apparently no one even noticed.

On April the 30th, one of the busiest crypto news day when the Consensus blockchain conference was going on and so much else, Arthur Hayes, CEO of Bitmex, said and we quote at some length:

In order to entice others to provide liquidity, we funded an entity that would quote as soon as a new product listed…

Right now the activity of this affiliated entity is concentrated on the altcoin contracts. XBTUSD and the quarterly Bitcoin/USD futures contracts have plenty of liquidity…

The trading entity is a for-profit operation. However, their earnings are comprised of a service fee paid by the business, that is the BitMEX trading platform….

The market making desk earns the most if the exchange earns the most… The primary trading activity is providing two-sided liquidity on selected BitMEX products. The desks current focus is on increasing the liquidity on the altcoin contracts. The desk will also be the anchor market maker for the UPs and DOWNs products…

The head trader is Nick Andrianov. He is a former Deutsche Bank equity flow and exotics options trader…

Nick receives the business objectives from various senior members of BitMEX. The business and the market making desk work closely with the express goal to make every single BitMEX product as liquid as possible.

Nick Andrianov currently describes his position as Business Development Manager at Bitmex, suggesting this is just a department within Bitmex rather than a subsidiary.

A market maker is someone who is willing to place a bid and ask (buy and sell) order at any price. The market maker, which is better known as a high frequency trader, usually makes money from the difference in the spread between the buy and sell order.

In this case, however, Bitmex is saying they are not meant to make any money from the spread. Even though they are a for-profit entity, if they make profits then they are meant to reduce their spreads between buy and sell orders.

That suggests Bitmex might be wash trading, which is defined as a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace.

Bitmex does not admit that they fakely buy their own sell order, but they do say their focus is on increasing the liquidity on the altcoin contracts.

Why Bitmex is paying what looks like a department of their own a service fee is not clear, but some suggest that is a rebate of trading fees, which means this trading entity can trade on Bitmex for free, unlike all the other Bitmex customers.

It appears another privilege Bitmexs trading entity has is privileged access to Bitmexs trading platform. According to a pseudonymous Matthew Collins:

There appeared to be another bot that was making consistent ...

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Tags: Customer, Market manipulation, Trading Futures, Even Though