The founders of cryptocurrency exchange platform BitMEX were indicted by US prosecutors in New York for failing to maintain adequate anti-money laundering processes at the company.
BitMEX founders Arthur Hayes, Benjamin Delo and Samuel Reed were indicted on charges of violating the Bank Secrecy Act and conspiring to violate the Bank Secrecy Act, both of which carry a maximum prison term of five years.
Also charged was Gregory Dwyer, the exchange’s first employee who was later promoted to the head of business development. Reed was arrested in Massachusetts this morning, while the rest remain at large, prosecutors said.
BitMEX’s representatives have yet to issue any statement and will presumably do so in the coming hours.
Meanwhile, bitcoin completely erased gains following the news, and is currently trading at $10,500.
The US Commodity Futures Trading Commission has been investigating BitMEX since July 2019, with a focus on whether the exchange broke rules by allowing Americans to trade on the platform, which isn’t registered with the agency.
In August, the exchange attempted to take a leap towards a regulatory-friendly trading situation by introducing KYC for all users. However, this was clearly not enough to convince US prosecutors.
What does this mean for BitMEX users?
The fact that a high profile bitcoin exchange is on the verge of being taken down cannot be interpreted as anything other than bad news. Given that the individuals are highly influential in the space, writing this off as a non-event is naive. Indeed, Arthur Hayes is more or less akin to an industry titan – very often mentioned in newsrooms and with his Twitter handle alone boasting nearly 100,000 followers.
While BitMEX technically has offices all over the world and not strictly within the US’ jurisdiction, if the United States is after you, there’s arguably nowhere you can hide – so it’s all up in the air at the time of writing. Bitmex has existed since 2014 and continues to be operational at the time of publishing.
Will US Federal prosecutors seize the domain or will the titan exchange live to fight another day?
Only time will tell, but a mass exodus form the exchange is sure to happen.
Update 01/10/2020 (20:20 CEST):
The parent company of crypto derivatives exchange BitMEX, HDR Global Trading Limited, and one of the defendants in the civil lawsuit, have vowed the fight the charges, according to a new statement.
Bitmex wrote on their blog:
“We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously. From our early days as a start-up, we have always sought to comply with applicable U.S. laws, as those laws were understood at the time and based on available guidance.”
“In the meantime, the BitMEX platform is operating entirely as normal and all funds are safe. To allay any potential customer concerns, pending withdrawal requests were processed at 17:45 UTC, in line with our standard procedures. We will process another off-cycle withdrawal at 08:00 UTC, 02 Oct 2020, and then 13:00 UTC, as usual.“
Comments circling social media indicate that BitMEX users are currently withdrawing bitcoin from the exchange.
Update 02/10/2020 (11:30 CEST):
Data from Glassnode media shows outflows from the exchange have hit record highs, showing that investors are pulling out their money from the exchange.
However, while investors are indeed pulling their funds from BitMEX, it remains to be seen whether this bitcoin will find its way onto the spot market. After all, such actions are taken primarily as a protective measure, and macro data still suggests overall market strength.
Meanwhile, data from CryptoQuant which shows overall bitcoin balances on exchanges this year suggests the bitcoin ‘hodl’ trend is alive an well, and arguably accelerating after the BitMEX news.
Should bitcoin fail to see dramatic selling pressure amidst a seemingly bearish consensus, then this would arguably weigh on broader perceptions of bitcoin in relation to such events. More specifically, the grand narrative of holding bitcoin as a store of value and hedge against money printing could carry more weight than bitcoin futures trading.
Update 05/10/2020 (8:00 CEST):
Since the start of the BitMEX saga, exchange outflow have hit record levels. According to data from glassnode, over 45,000 BTC were pulled from the exchange, with the total bitcoin on BitMEX dropping to 120,000 BTC, a 27% decline.
A Glassnode media Twitter thread on the matter delineates the entire turn of events, noting decreases across the board for the embattled exchange. Open interest on the exchange declined by almost 24%, from $590 million to $450 million – levels not seen since the time of writing.
While this might very well be the end of BitMEX, bitcoin will slowly find it way into other addresses and the world will keep spinning.
Long live the king.
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