The main reasons are/were leverage and lack of KYC, and secondarily, access to lots of altcoin markets. These are features you can't find on legitimate, tightly regulated exchanges like Coinbase or Gemini.
Anyway the poster's theory is this -
'When a contract settles or is sold on a BTC settled futures platform, the winner gets BTC (both short and long winners get BTC). The spot (fiat) market controls the settlement price and cannot be bought up with BTC. It can ONLY be sold down with BTC.
In a normal market there would be competing long traders offsetting the short traders. These long traders would be attempting to manipulate the spot up and therefore profit from their futures contract longs. This cannot happen in a BTC settled futures market without massive outside cash reserves. There is no way for a long trader to make fiat in order to buy the spot market up, they can only make BTC. The manipulation process ONLY works to the downside on BitMEX BTC settled futures. Since BitMEX is far and away the most volume, there is no competition for the short manipulators.'
'Manipulation' is a tired trope and I certainly don't think this fall was anything but inevitable. It was going to happen no matter what.
All the same, what do you think of Bitmex's place in all this? And what would the effects be when it eventually fades away?
It's a somewhat convincing story, and there are definitely some nuggets of truth regarding the difficulty in offsetting spot sellers from Bitmex. GDAX
used to allow crypto-collateral margin trading (up to 3x) for accredited investors but stopped after an ETH flash crash. Bitstamp doesn't offer it.
However, Kraken does allow margin trading up to 5x and traders can use BTC and ETH as collateral. Presumably long traders can buy up the market there more easily.
At the end of the day: if not Bitmex, it'll be another leveraged futures market.
