As we head into the weekend, there is news coming in that Bitmex is the subject of an investigation by the CFTC in the US. We actually predicted that something like this would happen, barely two weeks ago, on the 4th of July. The ‘Tangle in Taipei’, Bitmex CEO Arthur Hayes’ debate with perma-crypto bear (and perma-bear) Nouriel Roubini played a small part in bringing the derivatives market into sharper focus globally. Surging derivative volumes, increasing institutionalization and the resulting need for further sophistication in crypto risk management options are all likely contributory factors as well.
Expect a dichotomy to emerge in the derivatives exchange space as well, like the one that exists in spot exchanges with Coinbase and other western exchanges on the one end of the spectrum, and Binance and other Asian exchanges on the other. Bitmex will likely continue to be an unregulated venue catering primarily to retail speculators in the near term.
The CFTC is perhaps being a bit disingenuous in claiming that it is worried about protecting the proverbial grandma from frittering away her pension on a 100x leverage position on bitmex. How tech savvy does the aforementioned grandma need to be get the VPN going to log in to Botmex, get past the clunky Bitmex UI and then place a 100x YOLOO trade. If said grandma can actually pull this off, does the regulator really think she needs their protection?
The bigger aim here is two-fold; Threaten punitive action, get some fines going, and likely sizeable ones at that, given how much money Bitmex has made over the past couple of years, thanks to its early-mover advantage in crypto, and let Arthur tighten his game, with perhaps some sort of KYC/AML requirements and/or a move to a more regulated geography. This is akin to one of the numerous fines that Wall Street Banks are periodically hit with by SEC, where the eventual outcome is something that is settled “without admitting or denying wrong doing”. This also likely serves as a warning to other Bitmex wannabes sprouting out of off-shore regimes that want to provide more casinos for crypto speculators. At the very minimum, the cost of doing business goes up.
In our view, this is a good development. While the crypto derivatives market doubtless needs to develop, what is really needed is more regulated venues, with proper KYC and AML procedures. This is the only route for crypto to gain wider acceptance from regulators across the globe.
Have a great weekend, and before we log off, here is a selection of our favorite reads from this week before we get to the DeFi metrics for the week
Ethereum Locked in DeFi
MakerDAO still accounts for a lion’s share of ETH locked up in collateral, with more than 1.48 million of ETH locked up. Compound showed a tremendous w/w growth of 68% in ETH locked up, while Uniswap and Maker have registered modest w/w growth.
Lightning Network Growth:
Capacity per channel fell by 2% w/w. The total number of nodes increased w/w by 1%, and the total number of channels decreased by 1%.
(For reference, some previous articles on LN, here).
Trading volumes on DEXs have increased on a w/w basis, with the average daily trading volume averaging 35k ETH for this week. IDEX remains the biggest DEX in terms of trading volume and DAI is the highest traded cryptocurrency on DEXs.
Crypto Loans Tracker:
Total loans issued on Compound for the last week stands at approx. $13.4 million for the week, a strong increase from $3.2 million in the previous week. WETH is the most borrowed cryptocurrency on Compound followed by DAI and BAT.
Total loans issued on Dharma Lever for the last week stands at approx. $737k for the week, in line with the previous week’s numbers. DAI is the most borrowed cryptocurrency on Compound followed by WETH and USDC.
DAI loans issued on MakerDAO for this week stand at ~$9.8 million, a strong increase from $6.4 million last week. The total outstanding DAI debt currently stands at ~$91 million.
You can also check out last week’s Metrics Watch here.