What does the BitMEX bust mean for the cryptocurrency market?

It’s been 11 days since the CFTC issued its indictment against BitMEX’s senior management. But despite its legal troubles, the popular cryptocurrency exchange continues to operate with respectable daily trading volumes. This raises the question — how important is BitMEX to the greater crypto ecosystem?

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Now, in a worst-case scenario, if the defendants are found guilty, the exchange’s assets could be seized, accounts frozen, and all trading activity suspended. However, for now, this is unlikely to happen, especially since BitMEX has already replaced many of its senior leadership, yet was quick to defend its actions.

Following the aforementioned developments, many community members have hypothesized what the absence of BitMEX will mean for the future of crypto trading.

Some, like Compound founder Robert Leshner, argue that the absence of BitMEX means no price manipulation and, overall, a healthier market.

No BitMEX means the next bull run will be much less manipulated (and healthier).

Hold your position.

— ?Leshner (@rleshner) October 10, 2020

Leshner’s comments are interesting, but also consistent with his previous views on the issue, with the Compound founder accusing centralized exchanges like BitMEX of acting as “opaque platforms that can easily lead to money laundering.” Moreover, this is not the first time, as the exchange has been accused of market manipulation and criticized in the past for offering high leverage of 100x.

However, not everyone agrees with Leshner, with another camp viewing BitMEX as the number one medium for price discovery in the space, with many claiming that BitMEX provides crucial infrastructure that helps the market function.

“Not true. More infrastructure allows for better price discovery. If you can’t short an asset, then its price going up doesn’t make it more valuable. There are plenty of other Bitmex platforms around anyway, so it doesn’t matter if BitMEX disappears.”

— Anthony Ferenbach (@AnthonyFerrenb) October 10, 2020

This begs the question — is BitMEX down? Well, the answer is no. However, all is not rosy. As revealed in a recent report from Arcane Research, the average percentage share of open interest on BitMEX has dropped below 17%. Volumes have been declining since January, but recent developments won’t make trading any easier.

In fact, the initial panic on October 1 led to massive liquidations on BitMEX, with investors withdrawing 32,200 BTC in a single hour — volume that was largely captured by Binance, Huobi, and OKEx.

However, despite recent setbacks, BitMEX’s 24-hour trading volume is $1.2 billion, which is likely due to the fact that the trading platform is one of the oldest in the industry and has always held a large market share.

Additionally, while the aforementioned exchanges receive the majority of liquidations, BitMEX’s market maker fees make it an attractive venue for market makers, which is perhaps one of the reasons why it continues to see impressive daily trading volumes.

This period is uncertain, and it is difficult to determine what a hypothetical collapse of BitMEX would mean in the long run.

Jared Tate of DigiByte said it best when he tweeted,

“While we don’t know all the details yet, this will have long-term implications for the industry. BitMEX is not the only platform that offers these services. So others should take note of this. They are the oldest, so this is not surprising. This case may take years to play out.”

With the future of centralized exchanges now in question due to reduced arbitrage opportunities and increased regulatory measures, this development will likely lead to a more widespread use of DEXs in the coming months.