[2019-07-19] U.S. Regulator Probing Crypto Exchange BitMEX Over Client Trades

[figmentofmyass]

another day, another CFTC investigation of a major bitcoin/derivatives exchange. at least the DOJ isn't involved at this point---it's not a criminal probe. and the allegations don't seem nearly as serious as the ones made against bitfinex and tether.

reported by bloomberg:

The months-long CFTC probe is focused on whether BitMEX broke rules by allowing Americans to trade on the platform, which isn’t registered with the agency, said one of the people who asked not to be named discussing the investigation, which hasn’t been made public. The regulator considers virtual currencies like Bitcoin to be commodities, and it has jurisdiction over futures and other derivatives based on them.

BitMEX Chief Executive Officer Arthur Hayes said in an interview in January that BitMEX removes anyone who flouted company rules barring U.S. residents and nationals. However, it is possible clients masked their location by using virtual private networks to assign their computer an Internet protocol address from a BitMEX permitted country, tricking filters put in place, Hayes said.

While BitMEX is registered in the Seychelles, its main office is in Hong Kong, and it also has an office in San Francisco.

bitmex has an office in san francisco? doesn't seem smart if they're arguing they don't operate in the USA.

[Theb]

If they have a physical office in USA doesn't that mean that they are legally operating in the US? Or have they misrepresented themselves as some kind of other business that's why they have a case against them? Either way I have to agree with you that his argument is broken to begin with because of having an office in the USA what he can do now is just to admit a mistake and hope for the best that he would just pay a fine, I can even consider that as a slap in the wrist.

[bitcoindusts]

BitMEX Chief Executive Officer Arthur Hayes said in an interview in January that BitMEX removes anyone who flouted company rules barring U.S. residents and nationals. However, it is possible clients masked their location by using virtual private networks to assign their computer an Internet protocol address from a BitMEX permitted country, tricking filters put in place, Hayes said.

This is the case here, even if he stated about removing any US residents and nationals it is still possible that some made their way there through private virtual networks and it makes BitMEX subject to the accusation, besides the fact that they also have office in the US. It seems that putting their main office in Hong Kong is just a way to avoid regulations but then their are still hooked by having one in the US.

[1Referee]

If they have a physical office in USA doesn't that mean that they are legally operating in the US?

Not necessarily. They can have an office there and still not be operational within the US. It reeks though, because I'm pretty certain that them having an office within the US means they are trying to maintain their contacts and partners there. It's definitely something the CFTC can leverage if they feel there isn't anything else to bite into.

It's only going to be interesting when Bitmex is forced to let the CFTC sniff through its userbase for accounts that were previously visiting the platform from a US IP address, but suddenly use a completely different IP indicating the use of a VPN. If I was from the US and had funds over there, I would immediately withdraw it until the storm is over. Better safe than sorry.

[figmentofmyass]

This is the case here, even if he stated about removing any US residents and nationals it is still possible that some made their way there through private virtual networks and it makes BitMEX subject to the accusation, besides the fact that they also have office in the US.

if they try to set precedent that allowing VPN without KYC is enough to establish that a business is operating in the USA, it'll send tremors through the whole ecosystem. the geoblocking methods employed by exchanges would immediately be rendered non-compliant. even if the case is settled and no precedent is established, exchanges will start restricting VPN usage out of fear of future enforcement actions from the USA.

[Theb]

If they have a physical office in USA doesn't that mean that they are legally operating in the US?

Not necessarily. They can have an office there and still not be operational within the US. It reeks though, because I'm pretty certain that them having an office within the US means they are trying to maintain their contacts and partners there. It's definitely something the CFTC can leverage if they feel there isn't anything else to bite into.

It's only going to be interesting when Bitmex is forced to let the CFTC sniff through its userbase for accounts that were previously visiting the platform from a US IP address, but suddenly use a completely different IP indicating the use of a VPN. If I was from the US and had funds over there, I would immediately withdraw it until the storm is over. Better safe than sorry.

Well that office will be one of their main point in the case but I don't think it will be there smoking gun, they still need to prove that they are purposely allowing US citizens to use their services to convince any judge. Also they don't actually need a court order or a warrant to know if they really have clients from theit country actively using their service. Tracking IP addresses at least for the ones not using VPNs are highly and legally accessible to anyone and if they see that their exchange don't block their IPs I think it says a lot for them.

[buwaytress]

During the Libra hearing as well, they kept asking (and Facebook's Marcus kept avoiding): how will any US regulator have a role to oversee an entity registered in Switzerland? It's a FinCen jurisdiction, and where your business entity is legally registered, or recognised that jurisdiction is where you owe your legal compliance to.

But what was that big exchange again that the US started pursuing first, leading to Binance etc to actively block US customers?

[BitHodler]

If I was from the US and had funds over there, I would immediately withdraw it until the storm is over. Better safe than sorry.

That seems to be happening as we speak-- large amounts are being withdrawn from BitMEX and I can't see this come to an end any time soon. People are rightfully worried about what the outcome of this investigation is.

I would withdraw funds as non US trader too because you never know what the actual consequences will be in the worst case scenario. BitMEX may have the most liquidity, but what's that worth when you may lose your coins?

To add, I'm sure that exchanges similar to BitMEX will not exist indefinitely. At one point regulators around the world will force them to obtain the right licenses and subject traders to KYC/AML requirements.

[squatter]

If I was from the US and had funds over there, I would immediately withdraw it until the storm is over. Better safe than sorry.

That seems to be happening as we speak-- large amounts are being withdrawn from BitMEX and I can't see this come to an end any time soon. People are rightfully worried about what the outcome of this investigation is.

Where are you viewing this? Could you provide a link?

It doesn't seem too serious yet. As was pointed out in the article, often times nothing materializes from such CFTC probes. Either way, I wouldn't worry too much yet since the DOJ doesn't appear to be involved in the case. For now, it's just a civil matter.

To add, I'm sure that exchanges similar to BitMEX will not exist indefinitely. At one point regulators around the world will force them to obtain the right licenses and subject traders to KYC/AML requirements.

That may be exactly what this is about -- pressuring BitMEX into implementing KYC. The CFTC seems to be suggesting that geo-blocking prohibited regions isn't enough.

[1Referee]

Tracking IP addresses at least for the ones not using VPNs are highly and legally accessible to anyone and if they see that their exchange don't block their IPs I think it says a lot for them.

I just checked, people from the states can still create an account at Bitmex, but they aren't allowed to deposit or trade. I would have expected Bitmex to completely block all incoming traffic from the US. This is weird, why would you allow someone from a country you don't serve create an account?

This is their notification;

At this time BitMEX cannot serve customers in your country of residence. You may still create an account, but you will be unable to deposit or trade. If you wish to try simulated trading, please try our BitMEX Testnet. Access to the BitMEX Testnet is not for trading purposes, and is not intended as investment advice or as a solicitation to engage in any form of trading activity and should not be construed as such.

I have visited other sites that do not serve customers from the states, and they don't allow me to register or do anything at all.

[figmentofmyass]

I just checked, people from the states can still create an account at Bitmex, but they aren't allowed to deposit or trade. I would have expected Bitmex to completely block all incoming traffic from the US. This is weird, why would you allow someone from a country you don't serve create an account?

i guess it's of no consequence. if they aren't offering access to real money trading, they aren't breaking any laws. it's like offering play money poker games. AFAIK people in the USA can play with play money on pokerstars too, but are barred from real money games.

[Aveatrex]

I would have expected Bitmex to completely block all incoming traffic from the US. This is weird, why would you allow someone from a country you don't serve create an account?

Simply because Traffic=Money; Having more traffic means your website will have a better ranking when looking for exchanges using Search engines like Google that's called "SEO" -Search Engine Optimization, and also to keep a good Alexa ranking of their website. They also know that even if they block US IP from accessing the website people would use a VPN anyways..

[BitHodler]

Where are you viewing this? Could you provide a link?

It doesn't seem too serious yet. As was pointed out in the article, often times nothing materializes from such CFTC probes. Either way, I wouldn't worry too much yet since the DOJ doesn't appear to be involved in the case. For now, it's just a civil matter.

Here is the link: https://www.tokenanalyst.io/exchange/btc/bitmex

The outflow a day ago peaked at $73 million, which is indicating that people are worried. This for me as non US user is reason enough to at least for now not trade on BitMEX. Deribit (for now) seems to be a decent alternative.

The thing that makes me a bit uncomfortable is that the CFTC might use BitMEX as some sort of a signal that you shouldn't even think about following the same path, and this by punishing them in the most severe way.

[bbc.reporter]

Where are you viewing this? Could you provide a link?

It doesn't seem too serious yet. As was pointed out in the article, often times nothing materializes from such CFTC probes. Either way, I wouldn't worry too much yet since the DOJ doesn't appear to be involved in the case. For now, it's just a civil matter.

Here is the link: https://www.tokenanalyst.io/exchange/btc/bitmex

The outflow a day ago peaked at $73 million, which is indicating that people are worried. This for me as non US user is reason enough to at least for now not trade on BitMEX. Deribit (for now) seems to be a decent alternative.

The thing that makes me a bit uncomfortable is that the CFTC might use BitMEX as some sort of a signal that you shouldn't even think about following the same path, and this by punishing them in the most severe way.

Some cryptocoin news websites say it peaked up to $85 million. I do not know what is true anymore. Maybe the higher the amount announced the higher the incoming clickrate hehe.


$85 Million Withdrawn from BitMEX Amidst Looming Threat of CFTC Investigation

Read in full https://beincrypto.com/85-million-withdrawn-from-bitmex-amidst-looming-threat-of-cftc-investigation/

[Slow death]

The Bitmex situation is not good at all, and with bitcoin-related news channels always talking about Bitmex, people using Bitmex are expected to be scared and withdraw their funds.

BitMEX Bitcoin Volume Slumps 33% After CFTC Investigation

BitMEX CEO Arthur Hayes Goes Mum amid CFTC Probe Rumor

I wonder how the market will react to this, because the price is already below $10,000

[figmentofmyass]

The Bitmex situation is not good at all, and with bitcoin-related news channels always talking about Bitmex, people using Bitmex are expected to be scared and withdraw their funds.

BitMEX Bitcoin Volume Slumps 33% After CFTC Investigation

BitMEX CEO Arthur Hayes Goes Mum amid CFTC Probe Rumor

meh, this activity is pretty typical after FUD like this. bitfinex has seen multiple large exoduses from their cold wallet after actions by the CFTC, DOJ, NYAG......federal agencies in the USA take forever to bring cases forth too. things will probably return to normal pretty soon.

I wonder how the market will react to this, because the price is already below $10,000

i don't think the market cares. the price stayed sideways after news of the CFTC probe, and then shot up past $11k a day later.

[bbc.reporter]

@figmentofmyass. You do not think this is something more concerning this time, with office of the attorney general, the hearings and this probe?

I am confident that the cryptospace will give them some problems, however we should not underestimate the power of the American government. They mit be very angry this time hehehe.



Crypto derivatives platform BitMEX is bleeding funds, amid worries that a CFTC probe could lead to a full-blown investigation.

Data collected by TokenAnalyst show that BitMEX’s wallet balances have declined substantially since Friday. As can be seen on the graph below, there was a sharp surge in withdrawals on June 19th, the day the Commodity Futures Trading Commission announced its probe into the exchange.

Traders withdrew more than $175.5M worth of Bitcoin (BTC) between Friday and Tuesday. With only $49.6M coming in during the same time period, the leveraged trading platform saw a net outflow of approximately $125M over the past five days.

Read in full https://cryptobriefing.com/bitmex-traders-cftc-probe/

[figmentofmyass]

@figmentofmyass. You do not think this is something more concerning this time, with office of the attorney general, the hearings and this probe?

I am confident that the cryptospace will give them some problems, however we should not underestimate the power of the American government. They mit be very angry this time hehehe.

i'm not one to underestimate the american government. it's just that they move at a glacial pace, often taking years before unsealing indictments. the CFTC has been investigating bitfinex since late 2017, so that gives some idea of how long it will be before anything comes from the bitmex probe.

[bbc.reporter]

@figmentofmyass. It appears Arthur Hayes does not underestimate the American government too hehehe. He has been in hiding and there was not a single post from him and his Bitmex account in social media since July 11 and July 15.


Mark been there, done that Karpeles

An otherwise active social media personality, BitMEX CEO and co-founder Arthur Hayes has gone silent on Twitter for more than two weeks. Is it due to the ongoing CFTC investigation?

His disappearance coincides with a probe launched by the Commodities Futures Trading Commission (CFTC) against BitMEX. The US futures regulator is investigating whether or not BitMEX offered its crypto derivatives services to American citizens. Bloomberg reported on July 19 that the probe is underway. Meanwhile, Hayes is offline since July 11.

The story is the same for BitMEX’s official social media handles. The last time the Seychelles firm was active on Twitter was on July 15. It went silent, just like its CEO, after that.

Read in full https://bitcoinist.com/bitmex-ceo-arthur-hayes-goes-awol-amidst-cftc-probe/