USA vs. BitMEX: are we waiting for the cleansing of the cryptocurrency market?

Last week, the US government convincingly demonstrated to the crypto community that officials no longer intend to turn a blind eye to what is happening in the industry. It all started on Wednesday – September 30 – when the SEC (US Securities Trading Commission) made a decision obliging SALT (a platform specializing in crypto lending) to return to depositors the $47 million raised during a successful ICO. The platform management was also notified of the need to pay a fine of $250,000 and register the ERC-20 SEL token as a security with the SEC Commission.

In the next step, another regulatory body – SFTC (Futures Trading Commission) – filed a civil lawsuit against the BitMEX crypto platform and its owners. Appears in the documents and BitMEX CEO Arthur Hayes.

The essence of the accusations

The accusation raised sounds quite serious: the use of the BitMEX platform for the illegal circulation of cryptocurrency derivatives. And this is a violation of the anti-money laundering law.

The significance of the problems that arose at the platform at the initiative of the American authorities is beyond doubt. Suffice it to mention that the US Department of Justice – in parallel with the movements described above – opened criminal proceedings against the heads of companies closely associated with BitMEX. They are accused of non-compliance with the law on bank secrecy.

Samuel Reed, who was in the United States (this is the technical director of BitMEX), was immediately placed under arrest. And, judging by the mood of the US Department of Justice, Arthur Hayes and the other co-founders – Benjamin Delo and Gregory Dwyer – appearing in US jurisdiction also risk facing the prospect of imprisonment.

Charges have also been filed against legal entities: limited liability companies HDR Global Trading, 100x Holding, ABS Global Trading, Shine Effort and HDR Global Services (Bermuda).

Apparently, the activities of this conglomerate have been monitored for a long time, and the American FBI carefully collected evidence before bringing charges. As FBI Assistant Director William Sweeney Jr. wrote in a statement:one of the defendants went so far as to brag about a non-US registered company because bribing regulators in that jurisdiction only cost a “coconut”.

The seriousness of intentions is also evidenced by the fact that the accusers operate with specific figures. So it was announced that the exchange served about 85,000 clients from the United States, accepted deposits from them in the amount of $11 billion (in BTC) and paid $1 billion in commissions.

And since the CFTC operates with such figures, therefore, the Commission has a sufficient evidence base. BitMEX is also accused of the fact that the management of the platform knew about the investigation initiated by the Commission of its activities (since July 2019), but – despite the formal ban on trading from IP addresses registered in the United States – allowed American citizens to open and close transactions through VPN connections . And the platform launched the KYC procedure only in April 2020.

Respondent’s position

Naturally, the defendants deny the charges brought against them. Thus, HDR Global issued a statement as follows:

“We strongly object to the arbitrary decision of the US government to make such accusations. And we plan to vigorously fight …. Since our first day of operation, we have consistently strived to comply with the laws of the United States“.

Likely consequences

Perhaps the graphs will display the spectrum of possible consequences most clearly.

Thus, the reduction in the balance of the BitMEX exchange after the publication of scandalous news amounted to more than 45,000 BTC (-27%).

And open interest decreased by 24% to the level of May 2020.

At the beginning of the material, we mentioned the SALT project not in vain, because the situations of these companies – even with external similarities – are still different.

The chart below shows the market reaction to the “harsh” decision of the SEC.

And such behavior indirectly indicates the presence of some kind of insider. Most likely, the project has a new influential owner. A $250,000 fine is not critical for him, but the return of funds to co-investors frees him from unnecessary co-owners.

The modern world is arranged in such a way that despite the general equality before the law, there are those who are somewhat “more equal” than others. Suffice it to recall the case of JP Morgan with a proven fact of a long-term fraud in the precious metals market and the “severity” of the punishment incurred by this structure.

Although Arthur Hayes himself, when passing a personality test at the end of the university, demonstrated a high propensity to make illegal decisions and an equally high probability of criminal prosecution for his actions. And it looks like the tests could prove prophetic, as FBI Assistant Director William Sweeney Jr. mentioned earlier stated:

“As a result of the painstaking work of FBI agents, analysts and representatives CFTC, they soon learn that the crimes they supposedly committed will be punished not with tropical fruits, but rather with fines, restitution and imprisonment“.

First conclusions

Most likely, the swift arrest of one of the co-founders of BitMEX indicates that this story is unlikely to end in a happy ending for Arthur Hayes and his company. But analogies with SALT – and even more so with JP Morgan – are not very appropriate in this situation.

In any case, what happened with BitMEX indicates the upcoming serious purges in the cryptocurrency market segment. This process is certainly necessary to enter this niche of truly large capital.