UPDATED January 16, 2019, the response from BitMEX:
1. BitMEX has banned all US Traders since 2015 and has been proactively closing accounts since the guidance was obtained by US regulators, in particular, the Commodities and Futures Trading Commission (CFTC).
2. BitMEX has a very comprehensive terms of service in place, which are updated from time to time. BitMEX has always had the following wording in place as a part of its Terms of Service. The wording follows the OFAC lists as published by the US Department of Treasury.
3. BitMEX has always retained the right to close any accounts and to liquidate any open positions where any BitMEX trading participant has given false representations as to their location or place of residence. This has been a normal part of our process since we started banning all US traders, we have had a number of situations over the past few years where we have enforced this policy. The only thing that was new in the fourth quarter of 2018 was that BitMEX instituted the use of warning banners and pop-ups to inform all potential new users of the procedures.
Please see the wording as below from BitMEX terms of service:
BitMEX, the bitcoin futures exchange paying a US$600,000 monthly lease for their Cheung Kong Center office, is shutting down Quebec and US clients’ trading accounts. The company explained their latest move as a change of strategy after several global regulators intensified their crackdown on unlicensed cryptocurrency trading platforms.
The Hong Kong-based company also notified its users in Cuba, North Korea, Sudan, Syria, Iran, and Sevastopol in the Crimea to stop trading or holding positions on BitMEX since all these are restricted jurisdictions. According to reports from the company’s website, cumulative trading volume on the exchange stood at about US$965 billion in the past year.
The company’s move to bar Quebec clients from trading followed the Autorité des marchés financiers (AMF)’s, the province’s financial regulator, letter sent to the exchange. The watchdog sent that letter early in 2018 requesting the exchange requesting it to shut down all accounts linked to Quebecois stating that BitMEX was not permitted to offer trading services.
AMF’s director of media relations announced that they told the Exchange that their activities were illegal in Quebec announcing immediate closure of all BitMEX accounts linked to customers in the province.
On the other hand, the Securities and Exchange Commission (SEC) in the US declined to comment on the BitMEX issue. Arthur Hayes, the exchange’s co-founder and chief executive also declined to make any comments on the shutdown.
While the reasons to leave the US market is unclear, it comes coincidentally amid the rising enforcement actions from the SEC on all digital token intermediaries and trading platforms dealing with bitcoin.
The SEC imposed a US$388,000 last November on Zachary Coburn stating that the EtherDelta founder was operating an unregistered national securities exchange (NSE). The SEC said in a separate statement in November 2018 that all exchanges focusing on digital assets securities must register as an NSE or risk exemption from registration.
Also, in June 2018 the SEC and CFTC (Commodity Futures Trading Commission) pressed charges against 1Broker for purportedly violating federal securities laws for engaging in illegal bitcoin-funded securities-based swaps on an unregistered exchange. Patrick Brunner, the Austria-based chief executive of 1Broker was also targeted by these SEC charges.
It is not known whether BitMEX is registered with the SEC. Reports suggest that although the exchange’s bulk market thrives in Asia, the US was the other major market where the platform had gained traction in recent years. After the cryptocurrency bear market of 2018, many traders moved to trading bitcoin futures contracts to protect themselves from the market plunges.
BitMEX’s most popular product is the perpetual bitcoin/US dollar contract that has no expiry date and offers 100 times leverage. Thus, traders can use a small capital to make big bets and hold their positions for a long time. Also, its ‘downside profit’ and ‘upside profit’ contracts let traders make directional bets on all available cryptocurrencies.
Until the shutdown, the US users accounted for one-seventh of BitMEX’s total user base according to reliable anonymous sources. Although there is currently no way to gauge the impact of the closure of these accounts on trading volumes, the move comes amidst dwindling trading volumes in the past month.
According to BitMEX’s website January 11 data, the last 30-day period got US$58.41 billion trading volume. This is dismal compared to the company’s July 2018 tweet announcing a record 1 million bitcoin worth over US$8 billion traded within a 24-hour period.
A new BitMEX (and industry) record: 1,000,000 XBT (> $8BN) traded in the last 24 hours!
— BitMEX (@BitMEXdotcom) July 25, 2018
The January 2019 volume has dropped by almost 50% compared to the 30-day trading volume of approximately US$120.2 billion published within the first week of August 2018.
In Hong Kong, the probability of Seychelles registered BitMEX coming under close review by the securities regulator remains unclear. In November 2018, a “regulatory sandbox” for operators of every virtual asset trading platform that desired to get themselves licensed to enter the market was introduced by the Securities and Futures Commission (SFC).
In the current infrastructure, the SFC has tipped that its future licensing regime, if any, after the conclusion of the ‘sandbox’ will forbid licensed operators from providing leverage, derivatives, and futures trading contracts o clients.