This is big news. What is interesting about this to me is that unlike many crypocurrency exchanges, bitmex only deals in derivatives. What this means for them is that you can only deposit BTC, and only take out BTC. So they do not give anyone USD, and they do not deposit or withdraw money from anyone's bank.
It is also, by far, the best way to gain leverage in cryptocurrency products, with lower fees, great security, and even a wonderful blog and transparency.
I'm interested to what extent the government believes the BSA needs to apply to this, since a different area of the government (IRS) decided BTC was not even a currency. Of course, all of the relevant governing bodies (of which there are many in the US) can all choose their own designations, which may result in apparent inconsistencies, but I wonder to what extent they were warned about this beforehand.
What is also interesting is that Bitmex did not allow US residents to use their exchange via blocking US IP addresses and asking for country of residence, aside from perhaps the first few months. Some US residents would use a VPN and use it instead, but they (the client) would have to lie to Bitmex in doing so. It appears that's what the argument here is - that they did a poor job, knowingly so, of stopping US residents from using their services. BitMex was, over time, implementing tougher KYC, but currently it's not required by all of their clients for a few more months.
Can you provide an example of a typical trade that was done on BitMEX for someone who understands what derivative means (from a few of the good books that came out following 2008 and later) but is generally unfamiliar with that world?
>"‘Seychelles is cheaper to bribe than [the United States]’ and when asked how much he had to pay Seychelles to register BitMEX there, he said ‘a coconut.’"
In government regulated finance, our counsel had very good advice: Don't provoke the regulators.
"One defendant went as far as to brag the company incorporated in a jurisdiction outside the U.S. because bribing regulators in that jurisdiction cost just ‘a coconut.’ Thanks to the diligent work of our agents, analysts, and partners with the CFTC, they will soon learn the price of their alleged crimes will not be paid with tropical fruit, but rather could result in fines, restitution, and federal prison time."
BitMEX is the best, most reputable, and most secure crypto derivatives exchange. Their fees are -0.025% (maker) and 0.075% (taker), practically the lowest on the market.
They have never been hacked. They actively work to track and stop hacked proceeds from being deposited on their platform; and they do a better job at it than most regulated exchanges. (The complaint alleges one instance of a miss; but just look at the FinCEN leaks to understand how it's impossible to get everything).
3 of the founders live in jurisdictions w/o extradition treaties to the USA, so I hope they will be able to continue operating the best bitcoin exchange.
> Their fees are -0.025% (maker) and 0.075% (taker), practically the lowest on the market.
This used to be lowest, it's pretty high nowadays for traders who do volume (huobi, binance, okex, ftx all have the same product for lower fees). A few other exchanges like Bybit and Deribit have the same fees.
Maybe playing with derivatives was considered to be something similar to gambling and that's why it attracted regulators attention. There is a lot of "currencies" like loyalty points, games currencies, etc. which do not require KYC checks (for now, at least)?
The video of the debate between the founder of BitMEX and skeptic economist Nouriel Roubini [1], whose 2019 report [2] 'exposed' BitMEX and inspired the gov investigation into the company:
Quite fascinating in retrospect. Very testy debate and lots of weaselling work by Author Hayes (BitMEX) to evade direct answers.
That said, like any gov takedown, I'm not entirely sold that there isn't a world where BitMEX was providing a positive development to the industry. One that today simply fits poorly in the current US legislative frameworks [3] or entrenched companies. Of course, ideally it will be within a a more mature structure with better basic oversight and competition (technically Roubini is filling this role ATM) it has a better chance of existing, assuming it doesn't get neutered.
[3] Albeit as much as the infrastructure financial 'efficiency optimization' really provides long term value to society instead of just swiping a piece during the elaborate processes created by law and entrenched business.
Huobi, OkCoin, Binance and many others do the identical thing (synthetic USD products - they literally copied Bitmex's business model) and have the same or more volume as Bitmex.
I'm guessing nobody is going after them because they have China's protection or what? Or did they go through some special regulatory process inside the US?
They all require certain ID verification beyond some balance. Bitmex doesn't, which made it popular by US customers. Also, all of them are terrible for creating a synthetic USD while Bitmex is pretty darn good for that.
One of BitMEX’s security features at one point (if memory serves) was that one (or more) of the principals had to review/approve withdrawals daily. That is likely difficult for them to do from prison or while being detained pending trial or extradition. BitMEX is probably not a great place to have assets that you need access to any time soon right now.
If history is any guide, get your money out before that. You won't be happy when they lock your account and demand a verification document that you can't get.
The business itself is not illegal. It is illegal to offer those services to US customers, and they have no KYC verification so it is trivially easy to trade on BitMEX from the US.
Virtual money is everywhere, there seem to be many computer games, online gambling systems and on and offline card trading systems, vouchers and points systems. All of which can be traded without any heavy KYC/AML. It would be interesting to know where the line is drawn as Bitmex only trades in Bitcoin for Bitcoin.
>REED allowed a friend of his who he knew resided in the United States to continue to access BitMEX's platform up to and including at least in or about October 2018.
BitMEX only operates with cryptocurrencies. Not a single US dollar ever passed through it. US citizens were explicitly disallowed to use the service, and the US was blocked by IP. Why it even happened?
First, because US citizens still traded on the exchange. (mostly through a VPN); and second, Bitmex was offering a synthetic USD product. That's worse than being a non-regulated entity that offers real dollars.
Some friends started a Wealthfront copycat in latinamerica. To get local financial permits they had to comply with a bunch of KYC policies/rules because the US imposes it on their local banks and governments, and in turn the banks demand compliance from them, even though their company is strictly local.
Registration has nothing to do with it. The lack of AML/KYC controls is the issue. Implementing these would have likely been extremely costly to their business in the form of much lower growth.
3) Registering a Swiss company wouldn't exempt them from KYC requirements http://bankersacademy.com/pdf-aml/amlswitzerland-law.pdf for example says that the swiss AML legislation includes non-bank financial institutions (such as exchanges)
Edit to add: It's also non-trivial to get a Swiss work visa if you're not a national. I had one for a while and it required a Swiss company to use up one of their finite central allocation and show that the work wasn't replacing the job of a Swiss national and was being paid the average wage or more (this to prevent exploitation of migrant labour apparently).
I think the World Police BS that America engages needs to stop. That said, these guys have made it really really hard for regulators NOT to act.
You can't just put "No Americans (no proof needed)" on a US based website with a lot of US citizen clients dealing in synthetic USD products that's 110% non compliant with almost any US law and expect a nice outcome. Not with those sort of assets and market share.
>I think the World Police BS that America engages needs to stop
Not American and I'm annoyed by the US pretty frequently but I'm not really sure why the US having teeth when it comes to clamping down on global money laundering is a bad thing.
The financial sector appears to be the one sector where US authorities actually do a good job to stamp out crime, and I can obviously understand why the US will not tolerate an completely unmonitored shadow economy that could easily be used for sanction avoidance by Iran or any other rogue state.
Your account is immediately frozen if you log in just once via a US IP address. They track funds from known hacks and are not considered a safe option for hackers to liquidate. They have a much better reputation for service, exchange quality, and account safety than any of their non-KYC competitors. Not a single US dollar has passed through their platform -- nobody is using it for money laundering, but for speculative trading. They still have to convert to fiat somewhere. The fiat on their platform is synthetic. What more were they supposed to do?
I just hope this witch-hunt doesn't end the same as the Dread Pirate Roberts case for the government's political game on controlling cryptocurrencies and maintaining their monopoly over the financial system. Hayes is a great comedic writer and insightful analyst on the global financial system -- I highly recommend his posts on the Bitmex blog. However, I fear the tongue and cheek and comedy will be used against him in the case.
> I think the World Police BS that America engages needs to stop.
I legit thought it would've been reduced with Trump because of his isolationist positioning. I guess this is going to be the norm for a distant future. I don't see how this box is closed without an aggressive shift in Geopolitics. I don't see how this would be a peaceful transition but if you see a solution like that, I'd love to hear!
People have the right to use their money how they want without any outside interference.
If people want to play with their money on BitMex they should be able to instead of using VPN's to disguise themselves and do it illegally.
But apparently you are only permitted to spend your USD in the manner approved by the U.S. Gov and once the US goes to a digital currency, this whole law enforcement will be 1000x easier as every single transaction can be traced and immediately frozen.
[+] [-] ve55|5 years ago|reply
It is also, by far, the best way to gain leverage in cryptocurrency products, with lower fees, great security, and even a wonderful blog and transparency.
I'm interested to what extent the government believes the BSA needs to apply to this, since a different area of the government (IRS) decided BTC was not even a currency. Of course, all of the relevant governing bodies (of which there are many in the US) can all choose their own designations, which may result in apparent inconsistencies, but I wonder to what extent they were warned about this beforehand.
What is also interesting is that Bitmex did not allow US residents to use their exchange via blocking US IP addresses and asking for country of residence, aside from perhaps the first few months. Some US residents would use a VPN and use it instead, but they (the client) would have to lie to Bitmex in doing so. It appears that's what the argument here is - that they did a poor job, knowingly so, of stopping US residents from using their services. BitMex was, over time, implementing tougher KYC, but currently it's not required by all of their clients for a few more months.
[+] [-] Ihfhcub|5 years ago|reply
[+] [-] dmix|5 years ago|reply
[+] [-] bootcampwhere|5 years ago|reply
[deleted]
[+] [-] coderintherye|5 years ago|reply
In government regulated finance, our counsel had very good advice: Don't provoke the regulators.
[+] [-] nlh|5 years ago|reply
"One defendant went as far as to brag the company incorporated in a jurisdiction outside the U.S. because bribing regulators in that jurisdiction cost just ‘a coconut.’ Thanks to the diligent work of our agents, analysts, and partners with the CFTC, they will soon learn the price of their alleged crimes will not be paid with tropical fruit, but rather could result in fines, restitution, and federal prison time."
[+] [-] dannyw|5 years ago|reply
They have never been hacked. They actively work to track and stop hacked proceeds from being deposited on their platform; and they do a better job at it than most regulated exchanges. (The complaint alleges one instance of a miss; but just look at the FinCEN leaks to understand how it's impossible to get everything).
3 of the founders live in jurisdictions w/o extradition treaties to the USA, so I hope they will be able to continue operating the best bitcoin exchange.
[+] [-] askmike|5 years ago|reply
This used to be lowest, it's pretty high nowadays for traders who do volume (huobi, binance, okex, ftx all have the same product for lower fees). A few other exchanges like Bybit and Deribit have the same fees.
[+] [-] jkhdigital|5 years ago|reply
[+] [-] piokoch|5 years ago|reply
[+] [-] wmf|5 years ago|reply
[+] [-] dmix|5 years ago|reply
https://www.youtube.com/watch?v=qlZukhN_C6c&feature=youtu.be
Quite fascinating in retrospect. Very testy debate and lots of weaselling work by Author Hayes (BitMEX) to evade direct answers.
That said, like any gov takedown, I'm not entirely sold that there isn't a world where BitMEX was providing a positive development to the industry. One that today simply fits poorly in the current US legislative frameworks [3] or entrenched companies. Of course, ideally it will be within a a more mature structure with better basic oversight and competition (technically Roubini is filling this role ATM) it has a better chance of existing, assuming it doesn't get neutered.
[1] https://en.wikipedia.org/wiki/Nouriel_Roubini
[2] https://www.bloomberg.com/news/articles/2019-07-17/nouriel-r...
[3] Albeit as much as the infrastructure financial 'efficiency optimization' really provides long term value to society instead of just swiping a piece during the elaborate processes created by law and entrenched business.
[+] [-] hnracer|5 years ago|reply
I'm guessing nobody is going after them because they have China's protection or what? Or did they go through some special regulatory process inside the US?
[+] [-] csomar|5 years ago|reply
[+] [-] spurdoman77|5 years ago|reply
[+] [-] idorosen|5 years ago|reply
[+] [-] dannyw|5 years ago|reply
[+] [-] flyGuyOnTheSly|5 years ago|reply
[+] [-] jleahy|5 years ago|reply
They still do that, I can confirm.
[+] [-] flyGuyOnTheSly|5 years ago|reply
I wonder who was trying to get the jump on who, both here and there.
[+] [-] wmf|5 years ago|reply
[+] [-] x86_64Ubuntu|5 years ago|reply
[+] [-] ypeterholmes|5 years ago|reply
[+] [-] TedDoesntTalk|5 years ago|reply
[+] [-] flyGuyOnTheSly|5 years ago|reply
Or will it be seized once they are charged in absentia I imagine?
[+] [-] jkhdigital|5 years ago|reply
[+] [-] dagaci|5 years ago|reply
[+] [-] flyGuyOnTheSly|5 years ago|reply
How could they possibly know this?
[+] [-] not2b|5 years ago|reply
[+] [-] avrionov|5 years ago|reply
[+] [-] atemerev|5 years ago|reply
[+] [-] csomar|5 years ago|reply
[+] [-] ta1234567890|5 years ago|reply
Some friends started a Wealthfront copycat in latinamerica. To get local financial permits they had to comply with a bunch of KYC policies/rules because the US imposes it on their local banks and governments, and in turn the banks demand compliance from them, even though their company is strictly local.
[+] [-] pjc50|5 years ago|reply
[+] [-] x86_64Ubuntu|5 years ago|reply
[+] [-] ahupp|5 years ago|reply
[+] [-] flyGuyOnTheSly|5 years ago|reply
[+] [-] qeternity|5 years ago|reply
[+] [-] wsieroci|5 years ago|reply
[+] [-] seanhunter|5 years ago|reply
1) Registering a company in Switzerland requires a Swiss address and Swiss national as a director. See https://www.companyformationswitzerland.com/register-swiss-c... and elsewhere
2) Registering a Swiss company wouldn't by itself allow them to escape US DoJ enfoncement actions. see https://www.justice.gov/opa/pr/ubs-enters-deferred-prosecuti... for example
3) Registering a Swiss company wouldn't exempt them from KYC requirements http://bankersacademy.com/pdf-aml/amlswitzerland-law.pdf for example says that the swiss AML legislation includes non-bank financial institutions (such as exchanges)
Edit to add: It's also non-trivial to get a Swiss work visa if you're not a national. I had one for a while and it required a Swiss company to use up one of their finite central allocation and show that the work wasn't replacing the job of a Swiss national and was being paid the average wage or more (this to prevent exploitation of migrant labour apparently).
[+] [-] LatteLazy|5 years ago|reply
You can't just put "No Americans (no proof needed)" on a US based website with a lot of US citizen clients dealing in synthetic USD products that's 110% non compliant with almost any US law and expect a nice outcome. Not with those sort of assets and market share.
[+] [-] Barrin92|5 years ago|reply
Not American and I'm annoyed by the US pretty frequently but I'm not really sure why the US having teeth when it comes to clamping down on global money laundering is a bad thing.
The financial sector appears to be the one sector where US authorities actually do a good job to stamp out crime, and I can obviously understand why the US will not tolerate an completely unmonitored shadow economy that could easily be used for sanction avoidance by Iran or any other rogue state.
[+] [-] lend000|5 years ago|reply
I just hope this witch-hunt doesn't end the same as the Dread Pirate Roberts case for the government's political game on controlling cryptocurrencies and maintaining their monopoly over the financial system. Hayes is a great comedic writer and insightful analyst on the global financial system -- I highly recommend his posts on the Bitmex blog. However, I fear the tongue and cheek and comedy will be used against him in the case.
[+] [-] hnracer|5 years ago|reply
[+] [-] heimatau|5 years ago|reply
I legit thought it would've been reduced with Trump because of his isolationist positioning. I guess this is going to be the norm for a distant future. I don't see how this box is closed without an aggressive shift in Geopolitics. I don't see how this would be a peaceful transition but if you see a solution like that, I'd love to hear!
(edited for formatting)
[+] [-] Temasik|5 years ago|reply
[deleted]
[+] [-] HashingtheCode|5 years ago|reply
If people want to play with their money on BitMex they should be able to instead of using VPN's to disguise themselves and do it illegally.
But apparently you are only permitted to spend your USD in the manner approved by the U.S. Gov and once the US goes to a digital currency, this whole law enforcement will be 1000x easier as every single transaction can be traced and immediately frozen.