The crypto tanked a bit on the news that BitMex faces legal charges against the CFTC and DOJ. Adding further to this decline, there was a second wave when President Trump announced that he had contracted COVID.
On Friday, most of the coins seemed to be hit by these two fundamental drivers; however, on the whole, it does not seem too tragic.
If you decide to keep your skin in the game and you're unsure if the DeFi craze is over, then I have some very interesting findings for you.
Today I would like to talk about the houses, the houses that we call exchanges. These houses always make money regardless of the state of the market. If the market goes up, people need somewhere to trade. If the market goes down, people still need somewhere to trade.
And the houses always take the fee.
This time, however, given the current circumstances with BitMex, we have been provided with a unique opportunity to capitalize on one of the biggest shifts of users that is happening right now. An exodus between houses - if you will.
The thing is - there seems to be nobody that is speaking on this.
But first, let me provide a quick tl;dr on what’s been occurring.
What Happened With BitMex?
BitMex is the longest-running Bitcoin derivatives exchange. It allows users to trade BTC contracts with a leverage of up to 100x. Naturally, this high-stakes, high-reward type of environment attracted crypto Degens over the years as traders attempt to beat the system and earn higher profits on their positions.
However, BitMex has been notorious for operating within the shadows - away from any governmental regulation. Operating out of Seychelles, BitMex never incorporated any required regulation such as Anti Money Laundering (AML) or Know Your Customer (KYC) procedures. They operated like this for several years and only required an email address to sign up with.
This was until August of this year when BitMex out of nowhere announced that its users would undergo a KYC procedure.
That might have been too little, too late for them.
Although they actively block any USA I.P addresses, it seems that the US's regulatory bodies have had their eyes on BitMex for some time now.
On October 1st, Sam Reed, BitMex CTO, was arrested in Massachusetts. This action was taken after the US Department of Justice announced that they were taking criminal charges against Arthur Hayes, Ben Delo, Gregory Dwyer, and Sam Reed (already arrested).
The DOJ charged them with violating the Bank Secrecy Act, a regulation that forces US financial institutions to implement measures to battle money laundering and tax evasion - a charge that could result in up to five years in jail.
On top of all of this, the Commodity Futures Trading Commission (CFTC) - the SEC for Commodities - also filed a civil suit against BitMex and the members mentioned above. The regulator charged BitMex for operating an unregistered trading platform and violating CFTC regulations.
What a calamity for BitMex, eh? TWO US governmental bodies on their backs at the same time.
The problem is that BitMex conducts quite a significant portion of derivatives trading in the cryptocurrency ecosystem.
For example, since July this year, they have consistently facilitated over $1 billion in volume every day. They facilitated over $6 billion in one day at the peak during this period and pretty much average close to $2 billion per day.
The majority of this action is in BTC, which accounts for over 90% of their volume. The rest is pretty much split between ETH and XRP.
This is quite a significant level of volume within the ecosystem to be under attack.
In fact, last year, it was reported that there are around 22K daily active traders on BitMex;
That was 2019. It could easily be well over 30K/40K daily users in 2020.
On top of this, BitMex was actually valued at around $3 billion when it facilitated $3 billion volume per day.
Now...
As everyone jumps off the Bitmex ship…
This money and these users HAVE to go somewhere. The money doesn't like to sleep. Most of these traders will seek alternatives.
Following are three of the most likely candidates for users to head toward - and three great options for us to take advantage of;
1. Binance - $BNB
You all must know about Binance; it does not need too much of an introduction. However, many of you may not know that Binance actually has its own Derivatives trading platform - separate from the main Binance exchange itself.
Binance Futures is now the leading derivatives platform in terms of volume processed per 24 hours. For example, it processed over $5.8 billion in volume on October 2nd. On the same day, BitMex had only processed around $2.5 billion.
It seems that some traders might have already started to migrate over to here.
It might surprise you to find out that Binance processes much more volume on their futures platform than their standard SPOT cryptocurrency exchange.
With the BitMex fiasco scaring a whole lot of investors, coupled with the President of the United States contracting COVID-19, we can assume that the price for $BNB is still relatively cheap right now.
The reasoning behind this is the fact that Binance Futures is likely to absorb the majority of the Asian Traders that were originally using BitMex, and they too will start to buy up BNB for things such as trading fee discounts and taking part in IEOs.
2. FTX - $FTT
FTX is another derivatives platform founded by this man - Sam Bankman-Fried. Sam is an MIT graduate who previously had a trading group in the top leaderboards on BitMex. He went on to launch FTX in May 2019. He's a freak and an absolute genius.
The great thing about FTX is that they are going head-to-head with BitMex themselves - and FTX is on the path to winning the battle. This is especially true when we consider that FTX has an overwhelming range of derivatives products to trade from - rather than same 5 markets that BitMex offered since its inception.
FTX process around $1 billion on average per day in volume, so it is quickly catching up with BitMEX.
I have written an in-depth article about how FTX is likely to cannibalize BitMex over the following few years. You can find it here. It seems that this recent regulation pressure might actually help FTX take over BitMex much quicker than expected.
Oh, and Sam Bankman-Fried is not afraid to go head-to-head with the founders of BitMex;
FTX might not be the biggest exchange compared with OKEx and Binance. However, FTX is in a great position to capture the western audience of BitMex traders because they provide a platform geared toward advanced traders. They offer much more than BitMex, including a wider range of tokens, Options trading, and perpetual contracts on many different markets.
As a result, we can also take advantage of this migration of traders onto FTX by purchasing their FTX token before the newly on-boarded traders buy it.
3. OKEx - $OKB
Many of you might not know too much about OKEx because it is based in the eastern world. However, OKEx also has a derivatives platform that rivals BitMex. In fact, it is already processing over $2 billion in volume per day.
OKEx is a futures exchange with its own cryptocurrency - like Binance (BNB) and FTX Exchange (FTT).
The original exchange was established in 2016 in Hong Kong and started to offer derivatives in late 2018 after moving their headquarters to Malta.
OKEx provides trading options as well as derivatives through perpetual swaps. Although they do not offer quite as many trading markets as FTX exchange, they offer a few more than BitMex has done thus far.
The "great" thing about OKEx is the fact that they require KYC - so we shouldn’t see the CFTC or DOJ coming after them anytime soon.
We can take advantage of traders coming from BitMex onto OKEx by purchasing their OKB discount token.
Conclusion
BitMex users are rattled. They are scared. They are not entirely sure if there will be a BitMex exchange to trade from over the next few months. As a result, smart traders will already be searching for a new home - and the BitMex herd is guaranteed to be following them.
These traders have a tonne of money! They are absolutely wealthy - especially the experienced successful traders with all of them leveraged profits from BitMex. These guys are on the hunt for liquidity. They will not be heading to the smaller exchanges because they cannot provide enough liquidity for their rockets.
However, Binance, FTX, and OKEx offer just that - liquidity and a decent safety for their funds.
This is the perfect time to take up some new positions and bet on one of these houses as they are always making money regardless of the direction of the overall market.
Which one is your take? BNB, FTX or OKB? Let me know in the comments
