The Bitcoin futures market is experiencing the first major change in history as Bitmex goes weak
BitMex no longer maintains its ability to dominate the Bitcoin futures market as it has to compete with other exchanges such as Binance Futures, Huobi, and OKEx.
BitMEX is no longer the dominant force in the Bitcoin futures market. Just a year ago it seemed unthinkable that this would happen, but more and more institutions are entering the market and the advent of good crypto custodians has caused a huge shift in the market.
The Bitcoin market is mainly divided into three sub-markets: Spot, Options and Futures. The spot market refers to fiat-to-crypto or crypto-to-crypto transactions without leverage or leverage. Options are a form of derivative that allows investors to buy bitcoin contracts at a specific time and price. Futures contracts allow investors to trade Bitcoin on debt. With Binance Futures, for example, an investor can borrow up to 125 times the initial capital for trading.
The Bitcoin futures market has a significantly higher trading volume than the spot and options market. Futures contracts are easier to trade than options because of their simplicity and allow investors to trade larger amounts of capital than the spot market.
In the first three months of this year need on futures exchanges such as Binance Futures, Bybit, OKEx, Huobi and FTX, which has narrowed the gap between BitMEX and competitors.
Then, on March 13, 2020, the price of Bitcoin on major exchanges fell to around $ 3,600. This sudden withdrawal began to diminish BitMEX’s dominance in the futures market.
The mid-March decline was mainly triggered by a series of liquidations on BitMEX. Liquidation of a futures position occurs when the price of Bitcoin falls or rises above the position’s liquidation threshold. For example, if a trader places a long contract on Bitcoin at $ 9,000 with 25x leverage and the price falls below $ 8,600, the position will be liquidated.
When the price of Bitcoin fell from $ 7,967 to $ 5,800 on March 12, 2020, it sparked several cases. liquidation At BitMEX, long contracts occur for a short time. BTC continued to decline, hitting a 2020 low of $ 3,596 the next day. The sudden drop in BTC, what some call “Black Thursday“Is the event that has pushed BitMEX’s market share down significantly.
Events that caused BitMEX to lose its top position in the Bitcoin futures markets after March 12th
When the price of Bitcoin fell from around $ 6,000 to below $ 4,000, FTX manager Sam Bankman Fried speculated that BitMEX’s liquidation engine was selling $ 10 million worth of BTC at the time.
To understand what a liquidator is, it is important to first understand the role of a futures exchange. A futures exchange is just an intermediary for two types of traders: sellers and buyers. When a buy order is placed, the job of the exchange is to find a seller at the same price to fulfill the order.
When a trader takes a long position and expects the price of Bitcoin to go up but liquidate, the position is sold to the market, which creates selling pressure. The futures exchange then has to find a buyer who can withstand this selling pressure and buy into liquidation contracts.
The problem with BitMEX was that the order book at the time had a pretty thin list of buy and sell orders. When the Bitcoin price fell at breakneck speed to a level not seen since 2018, buyers and sellers struggled to keep up with the drop in prices even on the most widespread futures exchange.
Finally, the liquidated positions were sent to BitMEX’s liquidator. It appears to have started selling liquidated positions worth $ 10 million, adding to selling pressure on Bitcoin. When the order book was unable to process consecutive sell orders of $ 10 million, BitMEX became stop working Perform maintenance work. The maintenance resulted in the crypto market stabilizing and BTC began to recover shortly afterwards.
On March 12, FTX CEO Sam Bankman Fried said that the price of Bitcoin could theoretically fall to zero if BitMEX is not temporarily maintained.
“This is the key event: The liquidation is triggered with every USD moved / every USD liquid. And that RR volume is huge today. There was endless liquidation and the BitMEX order book was essentially unavailable. If R exceeds 1, we will all “walk away”. Why this? Because the $ 10 million liquidation is taking place, which lowers the price of X, enough to … trigger more than another $ 10 million in liquidations. So there is a loop. And if it continues like this, BitMEX will liquidate the order book … down to 0 ″.
Likewise, OKEx CEO Jay Hao too said Bitcoin price could have dropped to three-digit numbers if BitMEX hadn’t been maintained.
“Maintenance is a manual step to prevent the BitMEX liquidator from continuing to liquidate all users while their liquidity is tight. If BitMEX does not perform maintenance, the liquidation could easily push the price further down. “
After the controversial sell-off on March 12, the amount of Bitcoin on BitMEX dropped 25% in two weeks. It shows two possible scenarios: users withdrew from BitMEX after March 12, or BitMEX reduced their exposure to Bitcoin.
In any case, BitMEX fell behind OKEx as it became the leading derivatives exchange in the Bitcoin market in terms of 24-hour trading volume. BitMEX is currently behind Binance Futures, Huobi and OKEx, according to data from Skew.
BTC trading volume of exchanges in 24 hours | Source: Skew
What does the changed dominance on the futures market mean for Bitcoin?
The effects of the changing market share in the Bitcoin industry are symbolic. It turns out that the cryptocurrency market as a whole is maturing, developing, and changing after only a handful of exchanges and dominant companies for years.
Take 2017, for example, when bitcoin price hit $ 20,000. At that time, the market was mainly dominated by private investors. Grayscale’s Bitcoin Trust had approximately $ 3 billion in assets under management (AUM) as of December 2017. On May 15, 2020, the price of Bitcoin is hovering at $ 9,550. However, it has $ 3.279 billion in assets under management, even though the price of BTC is only half what it was three years ago.
Grayscale’s AUM is an important measure of institutional performance in the cryptocurrency market. Bitcoin Trust is a publicly traded stock in the United States that enables accredited institutions and investors to buy BTC by owning a stake in it. It remains the only alternative to an ETF that US institutions can rely on to invest in BTC.
Compared to 2017 and early 2018, the crypto industry has seen a “dramatic innovation” in terms of infrastructure. The user and customer base of the cryptocurrency market has also changed. The perception of Bitcoin among investors in the financial sector has changed after the billionaire Paul Tudor Jones Enter the Bitcoin Market. In conversation with The Scoop, billionaire investor Mike Novogratz say, Paul Tudor Jones’ investment in Bitcoin has opened up a new universe in the long run.
Until the end of 2019, the Bitcoin market was mainly dominated by the spot market and private investors. Currently, however, the number of investment institutions and professional traders using derivatives is increasing acceleratewhich makes the market more balanced among ordinary, professional and institutional investors.
Bitcoin is starting a new decade after early market entrants spent the last 10 years building the infrastructure foundation that will allow cryptocurrency to thrive. It is evident that the cryptocurrency market is experiencing significant structural changes and trend changes in all sub-markets including futures, spot, institutional and options markets.
Disclaimer of liability: This information is provided as a personal blog, not general information or investment advice. We are not responsible for your investment decisions.