History of the Rise and Fall of the King of Encryption Leverage: How did Arthur Hayes go from a generation of overlord to plead guilty?

On February 25, according to Bloomberg News, the two co-founders of BitMEX, Arthur Hayes and Benjamin Delo, pleaded guilty to violating the U.S. Bank Secrecy Act in a New York court on Thursday. The U.S. Department of Justice characterized BitMEX as a “money laundering platform.” For their actions, Arthur Hayes and Benjamin Delo were ordered to pay a fine of $10 million each and could face 6-12 months in prison.

Since October 2020, BitMEX has continued to encounter U.S. regulatory crackdowns, the CTO was arrested, the CFTC sued the platform and its founders, etc. Under the pressure of regulation, it has long lost its demeanor as the world's largest cryptocurrency derivatives trading platform. Even the newly issued platform token did not make any waves in the market.

New players in the encrypted world may not know this former giant. When the market was still chaotic, Arthur Hayes discovered a gap in the market and became the overlord of the encrypted world.

From being laid off to being a billionaire

Although registered in Seychelles, Arthur Hayes chose to locate BitMEX headquarters in Hong Kong, the world's financial center, which is not only a paradise for encrypted transactions, but also the place where Arthur first started.

Arthur and BitMEX are not short of money. In August 2018, the wealthy Arthur rented the 45th floor of the Yangtze River Center for a huge sum of money. According to the cost of US$28.66 per square foot (0.09 square meters), he broke the previous record and became the world's most expensive office in one fell swoop. The monthly rent totals more than 500,000 US dollars. Such a large sum allows BitMEX to be on an equal footing with world-class financial institutions such as Goldman Sachs and Barclays.

In his spare time, he can stand in front of the tall floor-to-ceiling windows and look out at the bustling city night scene opposite, full of pride. After 6 years in business, Arthur has become one of the most well-known entrepreneurs in the encryption world. BitMEX, founded by him, had a daily trading volume of 3 billion US dollars at its peak, and a 30-day trading volume of more than 120 billion US dollars. As long as someone comes to trade, The platform will continue to earn steady income from handling fees. Compared with Arthur's steady experience of moving bricks in his early years, this is the real daily progress.

When he first started his business, Arthur never imagined that he could make the business so big.

Seven years ago, in order to make a living, 22-year-old Arthur had to endure a salary cut at Deutsche Bank, where he had stayed for several years. After a while, Arthur switched to Citibank, but the sudden wave of layoffs made the newly settled Arthur, unfortunately, became one of them. This top student who graduated from the Wharton School of Business at the University of Pennsylvania just lost his job.

Arthur, who was born in a middle-class family in Buffalo, USA, considered working in the real estate industry and finally chose finance. After losing his job, whether to continue to find another job or start a business became the two choices before this black guy.

A month before he was laid off, he saw bitcoin online, and the novelty caught his attention. At that time, Bitcoin, which was different from traditional financial products, attracted more and more speculators as its price rose. Arthur found that there was a significant difference in the price of Bitcoin among multiple trading platforms. He naturally became a "brick mover".

At that time, due to bank transfer restrictions, he would even take a one-hour bus in Hong Kong to a bank in Shenzhen, withdraw the maximum allowed withdrawal amount of 20,000 yuan, and bring it back to Hong Kong. Although the process was cumbersome, it was completely compliant. It is through such artificial "moving bricks" again and again that he has accumulated the first pot of gold in his life.

Arthur, who has made money, is not satisfied with the status quo. He quickly aimed at the business of opening a trading platform. In the eyes of a financial veteran like him, there is no trading platform on the market that can satisfy him. Why not create one by himself? ?

In January 2014, Arthur, who was no longer satisfied with arbitrage with bricks, found two partners, one is Ben Delo, a computer scientist who graduated from Oxford University, and the other is a senior programmer from the United States Samuel Reed, the three hit it off and co-founded BitMEX.

BitMEX has a strong gene of traditional financial products. Unlike most platforms that provide various encrypted products, it is a pure futures contract platform that provides up to 100 times leverage and perpetual contracts. Almost all of the people who come here to trade are professional cryptocurrency investors.

When the platform was first launched, the market expansion was not smooth, "During most of 2015, the trading volume of BitMEX was very poor", "sometimes even zero transactions." Arthur recalled, but in October 2015, when the team When the upper limit of the leverage ratio was increased from 3 times to 100 times, users began to flock to participate in this thrilling game with no time limit, either instant riches or instant bankruptcy.

Due to BitMEX's unique products, the platform subsequently developed rapidly, so that for a long time, BitMEX once occupied the throne of the entire derivatives market. At the beginning of 2018, Arthur, who had already stepped out of the shadow of being laid off, was very energetic in an interview with Bloomberg: "Why do you still suffer from working in a bank? It's time to take a risk and give it a try."

Arthur and BitMEX, who enjoy high fee income, are indeed taking "adventures" every day.

BitMEX was expelled from many countries and regions

Even though BitMEX has become the world's largest bitcoin futures trading platform, occupying the largest market share in bitcoin futures trading, even though Arthur happily shared the exciting data of the trading platform on Twitter, telling people that on BitMEX The amount of open interest exceeds 1 billion US dollars, and the total trading volume of perpetual contracts exceeds 2 trillion US dollars.

But the sword of Damocles in the trading platform industry has always hung over Arthur: BitMEX does not have a compliant license.

On March 4, 2020, the British financial regulator FCA issued a warning to BitMEX, saying that it does not have a license and conducts trading platform business in the UK without permission.

The regulator specifically stated in the statement that unlicensed financial operations are likely to be related to fraud. Obviously, even though BitMEX is well-known in the industry, in the eyes of regulators, not having a license is almost tantamount to fraud.

In this regard, BitMEX has nothing to do. If they cannot complete the UK’s compliance before the registration deadline given by the UK FCA, which is January 2021, then BitMEX can only suspend the business in the UK region and close the accounts of UK users. .

And it's not the first time they've been forced to do so.

In early 2019, according to media reports, BitMEX had to close the accounts of US users due to restrictions from US regulators. Although BitMEX denied this news, it is conceivable that the United States, which has the most stringent regulatory requirements and compliance requirements for the cryptocurrency industry, has no regulatory license for BitMEX to conduct business freely under the attention of US regulators. The investigation of BitMEX by the Trading Commission proves this.

Subsequently, the Canadian regulatory agency AMF seriously warned BitMEX, saying that it was operating illegally in Canada and asked to close the accounts of users in Quebec.

What is even more unfortunate is that in November 2019, the Hong Kong Securities Regulatory Commission SFC issued the "Position Statement on Supervision of Virtual Asset Trading Platforms" and "Hong Kong Securities Regulatory Commission Published the Terms and Conditions of Regulatory Virtual Asset Trading Platform Issuance of Licenses", formally preparing to make virtual asset transactions compliant change. BitMEX seems to have judged the regulatory trend in Hong Kong in advance, and announced in August that it would stop providing cryptocurrency trading services for Hong Kong users.

Although BitMEX stated in the announcement that closing the accounts of Hong Kong users will not affect the business volume, it should be known that the office of BitMEX headquarters is one of the most expensive office buildings in the Yangtze River Center in Hong Kong. The loss of Hong Kong users is impossible without affecting the business volume.

As a result, BitMEX had to gradually ban users from more and more countries and regions, including: the United States, Quebec, Canada, Hong Kong, Seychelles, Bermuda, etc.

At the same time, other platforms began to make efforts in the derivatives business, and platforms such as Binance and FTX began to attract traffic and erode their share. Most people's last impression of BitMEX is that the "312" network cable was pulled to save the encryption market in 2020. At the last moment of market panic and despair, BitMEX, which has the largest short position, closed the trading function of the platform and gave Bitcoin After a few minutes of respite, the lowest price of Bitcoin, which fell without resistance, finally stopped at $3,300, which is also the lowest point in the past two years.

Subsequently, in October 2020, the CTO was arrested, and the regulatory agency CFTC announced the prosecution of BitMEX and the founding team. Arthur resigned as CEO and left BitMEX. He surrendered in April 2021 and pleaded guilty in February 2022. The former king of leverage may He also faces 6-12 months in prison.