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Crypto Trader Digest: February 19, 2021

A Message from Alexander Höptner, CEO of 100x Group

We’re nearing the end of February 2021 and thanks to our loyal users and all the hard work from everyone at the BitMEX team, we’ve had a very successful start to the year. We are now the world’s largest crypto derivatives exchange with a fully verified active user base, and the platform performed exceptionally well during the extremely volatile trading we’ve experienced this year. We also recently expanded our product offering with the listing of DOGE, and we have more contracts coming your way very soon.

There has been unprecedented interest in the crypto world as ATHs have been printed. So with this surge of interest, what better time to reintroduce something a lot of our users have been asking about? 

I’m very excited to present to you the latest edition of Crypto Trader Digest – right from The Desk of Arthur Hayes. And, as always, we’ve included some recent BitMEX Research and BitMEX news articles here too. 

Look out for further Crypto Trader Digest insights in the coming weeks and months.

- Alex (@AlexHoeptner)

From the Desk of Arthur Hayes


Can't Stop, Won't Stop, GameStop!!!!

Stonks for the long run. My hiatus from the equity markets ended when I too became sucked into the meme stock vortex. Seeing a meme stock like GME log a ten bagger in a few trading sessions will get any hardened market operator on their feet. I could not resist the YOLO urge. When things started heating up, I located my previously set up Robinhood account to ape in. I have a human broker as well, but I don't even want to know what egregious commissions they charge me to execute cash equities. (It's definitely more than the amount Robinhood - read: Citadel - legally front runs my orders by, that's for sure)

On the evening of Jan 28th, (Asia time zone) I attempted to buy some GME short-dated, out-of-the-money call options. Mon Dieu! Robinhood had shut down trading in the “meme” stocks (GME, NOK, AMC and BB). I don’t know what’s worse, when a snowboarder stomps all over the traverse in the backcountry, or not being able to trade my favourite stonk on the platform that is supposed to democratise securities trading.
I thought I understood how equities settled in the US, but I learned a lot over the ensuing weekend.
TL;DR on the Robinhood and other discount broker outages:
  1. Brokers must post margin with the Depository Trust & Clearing Corporation and National Securities Clearing Corporation at the end of each day to ensure enough funds are reserved to cover any trading losses.
  2. The “meme” stonks’ volatility skyrocketed, which meant that the clearing organisations could ask for more collateral from brokers on the grounds of needing to protect themselves from additional potential risk when settling the brokers’ trades. It takes two business days to settle stocks in the so-called digital age…
  3. Robinhood in particular was told to come up with $4 billion, or they would not be able to facilitate any trading the following day. RH, apparently not having that much cash on-hand, said, “how about we stop trading or severely curtail trading in the stocks that  are causing PAIN to various masters of the universe?” The clearing houses said, “OK, in that case, you would only need to post $700 million.” RH agreed to that figure, rushed to raise more money from the Street and/or Silicon Valley, and then subsequently shut off trading on Jan 28th and into the weekend. (This is information gleaned from an interview the CEO of RH gave to Elon Musk on Clubhouse). 
Naïve little me assumed that if I was buying equities or paying an option premium with cash in-full, there would not be a broker-level margin concern. I just didn’t understand the rules of the game, nor did most of RH’s “customers” (a reminder that you ain’t really the customer if you don’t pay for the service, you is the product son!)

The game masters just didn’t like how the game was being played, so they jacked up margin to force a course correction. 

I’m no stranger to janky settlement issues in equities markets. My first trading book was in Vietnam. If you think the US market is sketchy, the Vietnamese stock exchange circa 2009 was a beauty.
I literally faxed my orders into my broker every day. A fucking fax. The only person I know who still uses a fax is my mother. Then, if my order was large, my broker (I surmise, but cannot prove) would front run my orders. In Vietnam, on a given trading day you had to choose whether you were buying or selling. That means if I bought 1 share, I could not sell it until the next trading day. Then I had to sell USD and buy Vietnamese Dong —so I would call the spot currency dealer to buy the Dong so that I could settle on time. (I’ll let the reader fill in the blank with their pun of choice).

I have experienced the joy of dealing with many equity markets and their esoteric rules around settlement. These rules don’t really seem to matter— until they do, and when they do it’s usually to your detriment.
Back to the US discount brokers. After that fiasco, all hell broke loose in the financial media. The long punters cried foul. They said the game was rigged, and it wasn’t a free market. What they failed to understand was that the rules of the game didn’t change, they just didn’t understand the rules. Now that you know there is a cabal of organisations that can effectively shut off access via unilateral increases in margin at the broker level, do you want to play this game?
It’s not a moral or political argument. Now you know the rules, what are you going to do?

Retail vs. Institutional Traders

The foundation of the modern capital markets rests on a bifurcation of how financial products and services are offered or sold to retail vs. institutional investors. Most of you reading this essay are classified as retail, even if you are quite wealthy. In most jurisdictions, you need liquid assets in the low single digit USD millions to graduate from the retail to institutional moniker. But even then, unless you are slinging billions per year in flows, you will receive a much worse service, pay higher fees, and have less access than large money managers.
On the trading floor, if you ever heard the client was private wealth, you knew it was payday. These people were wealthy and they still got shown spreads you could drive a Tesla truck through.
Before the internet, there actually was a huge disparity in information and understanding of financial products between the wealthy and the plebes. Before the smartphone and high-speed internet, you might have to physically receive company annual reports. To price complex derivatives would take hours or days, and necessitated access to immensely expensive computing resources.
Thus, financial regulators around the globe wanted to ensure that retail investors did not get burned due to their information and computation deficit vs. large funds and financial intermediaries. But currently, the information and computing playing field is completely even. With an internet-enabled smartphone anyone can price an esoteric option or get immediate access to the latest financial updates from any company.

Most financial research is given away for free these days, and the ability to communicate efficiently via online messaging boards such as Reddit’s r/wallstreetbets encourages interested parties to engage in intelligent conversation about securities and trading strategies. However, retail still is not allowed to access many markets directly. They must go through regulated brokers, and they can trade only a subset of the financial products available to institutional investors.
By funneling retail through dumb slow pipes, dumb mutual funds / ETFs, and dumb beta chasing 2 and 20 charging “active” managers, the system enriches the financial intermediaries and the institutional investors. That is the architecture of the modern financial system. Can it change? Absolutely. How long will it take? I don’t know, but I hope you like to watch paint dry.
These are the retail vs. institutional rules of the game. If you don’t like them, your first option is to quit – and your second is to find another game altogether.


Retail traders in aggregate supply the cannon fodder for Hamptons pads, Monaco F1 jaunts, and 100,000 GBP bar tabs at The Box. But they still are treated like children and chastised when they “act up”. The rules of the game could not be clearer– and if you don’t like them, walk off the field.
Withdraw all your money from your broker. Stop trading. Stop paying the system that you believe treats you like a second-class citizen. That is opting out, and it is extremely powerful and liberating.
The American Civil Rights movement showed the power of opting out when black folks who were told to sit in the back of the bus but paid the same fare as everyone else, decided to forgo public transportation and carpool instead. The loss of income to the public bus companies forced Southern cities where the black population was significant to quickly reverse the discriminatory policy. When economic pain met racism, racism was defeated. It is, and always was, about the money.
If you want to buy and hold stonks through your broker, do it. Just make sure you have a cash account, use no leverage, and refuse to lend out your shares unless you receive the borrow interest. Given you have the same information as the pros, what’s the point of paying management fees to them when you can do it yourself? Want to create a thematic basket of stocks? That is so easy now that many brokers offer fractional shares. These sorts of activities do not benefit the system in aggregate.  If you aren’t borrowing money or constantly crossing the bid / ask spread, you are not a profitable customer.

The constant buying and selling of securities hands fees directly to the people you may claim to be rebelling against. This is where you are at a significant disadvantage due to the way the game is set up.
Trading is fun. I love it. The hormonal changes in your body when you are in the flow state keeps you coming back for more. If you are drawn to speculation for the thrill, or for the more common and depressing reason that it represents one of the only avenues left to augment your wage cucking in the hope to pay off student loan debt, medical bills, and or purchase your dwelling, there is another playing field ready to welcome you.
What if there was another game, where the baseline assumption was radical transparency in accordance with the spirit of the open-source technology movement?
What if there was another game where the financial intermediaries actually competed with each other to offer transparent, affordable, and fair access to all participants regardless of their net worth?

What if there was another game where if you didn’t like the rules, there was a technology protocol at your disposal to create services from scratch that better served the needs of yourself and or your target client base?

The Other Game

That system started on Jan 3, 2009 with the Bitcoin genesis block. Today that game is called the Crypto Capital Markets.Erected upon the bedrock of open source, this new Crypto Capital Markets game promises an open, permission-less way to move data / value around society. The playing field is cyberspace, and anyone with an internet-enabled device can play.
After slightly more than a decade, the total market cap of all cryptos has breached $1 trillion. Centralised and decentralised exchanges trade deca USD billions of notional per day. For a retail trader looking to play a new game, this market appears promising.
It’s risky for sure, but if your goal is to speculate your way out of COVID lockdown induced boredom, or to augment your declining real wages, crypto can and does generate such outcomes. It also, similar to traditional markets, could morph into a pit where your money and resources are set ablaze.
But, because the starting point is a radically transparent way to move value from point to point, trying to prevent the discovery of negative outcomes requires obfuscation, opacity, and evasiveness. The community is filled with legions of honest and well-meaning contributors who delight in pointing out bad actors, who they then pressure by challenging them to be radically transparent. Tell us your rules, publish them front, center, and in bold letters for all to see. Let no plebe use the excuse that they didn’t know or couldn’t learn about the platform, token, coin, crypto, etc. that they interact with.

This market assumes that participants take responsibility for their decisions, and in return offers a level playing field. There certainly are experts and thought leaders, but their moxie emanates from independently verifiable statements about their subject matter. You don’t get to be an expert in crypto because your surname contains the right vowels, or you happened to be highly credentialed. Respect follows results, not the other way around. It always helps to possess social capital, but if you ship shit code, the world will know because it is peer reviewed. If you want to charge management fees for performance, we can query your wallet balances on the blockchain and determine if you are just a beta bro or an omnipotent omega operator.
The ecosystem attempts to operate in a trustless manner. That is an ideal— in practice, there are many trusted financial intermediaries such as exchanges, wallet providers, custodians, etc. that are widely used across the market. However, the community is always attempting to strip them of their trust rent-seeking income by building scalable decentralised services to destroy the centralised ones.
Centralised services certainly provide positive value to the ecosystem. In many cases, they use their profits to invest in the decentralised solutions that could render parts of their business obsolete in the future. But the constant pressure to remove trust spurs the centralised operators to provide superior services to their customers faster than a decentralised provider. I should know, my wealth is directly tied to a centralised trading platform. BitMEX needs to constantly adapt, evolve, and provide a better user experience (not to mention maintain its security record and platform performance) to keep growing and generate earnings in the future.

I just spent a few hundred words spewing lofty ideals about the mindset of the Crypto Capital Markets. I did not provide many specifics to elucidate clearly why you should opt-in. In subsequent essays I will dive into the differences between the two games. As the traditional financial game is adjudicated and participants feel raw with the surfeit of perceived inequalities, I will in plain language demonstrate why that behaviour can’t or wouldn’t persist in the Crypto Capital Markets.
Do not despair, the game is the game. You just need to know which one to play to maximise the financial well-being of yourself and your family.
Until next time, Gil Scott-Heron said it best:

You will not be able to stay home, brother

You will not be able to plug in, turn on and cop out

You will not be able to lose yourself on skag

And skip out for beer during commercials, because

The revolution will not be televised

- Arthur Hayes, Co-Founder of 100x Group (@CryptoHayes)

From BitMEX Research


January 2021 Cryptocurrency Exchange Review (From CryptoCompare)

Abstract: In this piece, BitMEX Research delves into key market insights, including new daily volume records set on the 11th of Jan and CME setting a record number of monthly BTC futures contracts traded and maintaining the highest open interest.

Progress Towards Utreexo Goals

Abstract: 100x Group grantee Calvin Kim explores several claims about the benefits of Utreexo and the extent these advantages have been realised. Calvin explains the significant progress which has been made in the latest implementation of Utreexo, however there is plenty of additional work to do before ordinary users will be using the technology.

Bitcoin Miner Transaction Fee Gathering Capability

Abstract: In this report we discuss a new proposed mining pool, expected to censor certain transactions. This may result in a detectable diversion from the typical revenue maximisation transaction selection policy, which forms the basis of our analysis. Using the Bitcoin Core command “getblocktemplate”, we generated Bitcoin candidate blocks without doing any hashing, conducting this every 20 seconds for a two week period and recording the results in a database. We used multiple versions of Bitcoin Core and newer releases of Bitcoin Core experienced a 40.3% fee income improvement, when compared to a 2015 version. We also benchmarked our results against the real Bitcoin network and we were able to beat the real Bitcoin miners by generating 0.15% more in hypothetical fee income. This type of analysis may eventually be helpful in detecting miner censorship and determining whether Bitcoin’s censorship resistance property is a universal property of the system or merely a consequence of the transaction fee premium.

Latest News from BitMEX

Introducing the BitMEX Principles for Data Storage in the Travel Rule Era
June 2021 will be one of the most important dates this year for the crypto space – the date by which the global anti-money laundering and terrorist financing watchdog, the FATF, expects the crypto industry to implement the so-called ‘travel rule’. 

We’re pleased to release the BitMEX Travel Rule Data Storage Principles as a starting point for discussion from which all stakeholders can provide input. In the spirit of open discussion, we have released the Principles as non-copyright open source, in the hopes that it sparks debate and collaboration between regulators, industry, and interested users.

Real-Word Trading Benefits of BitMEX Index Protections Introducing the BitMEX Principles for Data Storage in the Travel Rule Era

We’ve explained how our strengthened index protection controls can give BitMEX users an edge versus those who trade on exchanges with less sophisticated safeguards. 

In this piece, we showcase a real-world benefit of one of those safeguards – the Index Protection Parameter – kicking in during trading for .BXRP and .BXRPXBT indices on Monday, 1 February. 

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No articles in this email should be copied or reproduced in whole or in part. The information contained does not constitute research or a recommendation. 

Neither HDR Global Trading Limited nor any of its affiliates make any representation or warranty as to the accuracy or completeness of the statements or any information contained in these articles and any liability therefor (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. This is not providing any financial, economic, legal, accounting or tax advice or recommendations. In addition, the receipt of this email is not to be taken as constituting the giving of investment advice nor to constitute such person a client of the BitMEX trading platform.

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