Hassan Maishera
BitMEX, the leading derivatives exchange, has been celebrating this week after notching up its eleventh birthday. For any exchange to have made it into double figures is quite remarkable, but in the case of BitMEX, it’s even more so given the security and regulatory threats it faced in its early days when it was the only perps platform in town.
It’s weathered them all, however, successfully warding off adversaries intent on toppling it. To have survived for 11 years without being hacked or shut down is quite an achievement, and BitMEX has naturally been toasting this in its blog post recording the milestone. But it’s not authored to crow about having survived this long; instead, the exchange has some lessons to impart – lessons that today’s traders would do well to heed. Here’s our pick of the best.
Bitcoin Rewards Patience
Given that BitMEX is the home of 100x leverage, it might seem rich for the exchange to start its 11 lessons by reflecting on Bitcoin’s performance during this period, and how the asset has always rewarded holders willing to sit on their hands. Nevertheless, the lesson holds true: it’s all too easy to get caught up in the cut and thrust of one-minute candles and lose sight of the bigger picture developing. And when you zoom out to a multi-year time horizon, while BitMEX has had a productive 11 years, Bitcoin has smashed it.
One of the reasons for this, asserts BitMEX, is due to Bitcoin having the fairest launch of all, with no ICO or premine. It’s a subtle dig, perhaps, at the current crop of cryptocurrencies that are VC-funded and destined to enter Down Only mode once team and investor tokens start vesting.
Perps Have Changed the Game
If you’ve traded crypto this year, there’s a high chance you’ve traded perps. Over the last two years, leveraged perpetual swaps, once the preserve of pro traders, have become much more accessible, cornering an increasing share of the retail market as a result. It’s easy to forget, however, that this entire market is thanks to BitMEX, the company responsible for pioneering the perpetual swap. Naturally, BitMEX hasn’t forgotten and emphasizes just how radical this was back in 2014.
The ability to let traders speculate on BTC without an expiry date was, quite literally, a game-changer. It’s become the default mechanism for futures trading, and it’s thanks in no small part to the funding rate mechanism that BitMEX developed. As a result, futures positions can be kept open for as long as the trader desires, with just a small funding fee to be paid to maintain them. This has resulted in traders who are net long or short on a particular asset maintaining open trades for months at a time.
BitMEX Also Pioneered CEX Cold Storage
The reason why BitMEX has never been hacked, despite running for 11 years, is not down to blind luck. It’s because the exchange eschewed hot wallets – the sort that enable near-instant withdrawals – in favor of cold storage. With no wallet connected to the web, this makes it extremely difficult – virtually impossible in fact – for hackers to steal funds.
This may sound like a logical decision today, but back when BitMEX got going, this wasn’t how it was done. Partly because it was the only serious futures exchange on the market, it was able to process withdrawals slower than the competition without hemorrhaging users to rival platforms. This slow and steady approach has been vindicated as BitMEX has thrived over the past decade plus, while other exchanges have been routinely breached – sometimes with terminal consequences.
No Flexing, Just Suggesting
While BitMEX has a lot to feel justifiably proud about on its eleventh anniversary, its primary concern – aside from bigging up the Legends trading competition it’s launched with a 5 BTC pool – is to dispense some practical advice to crypto users today. Because while history doesn’t necessarily repeat, it sure rhymes, and it’s hard not to look at some of the onchain products being dispensed today and see parallels with the recent past.
Remember Terra/UST? BitMEX does, as will anyone who got rekt when the collateralized stablecoin imploded. In the years since, the industry has managed to avoid a stablecoin collapse of similar magnitude – but that’s not to say there isn’t trouble bubbling beneath the surface. BitMEX gives short shrift to the current crop of high yield stables, urging: “The lesson from our 11 years of experience: always DYOR and maintain skepticism until you have enough information.”
It encourages users to question where the yield is actually coming from and to fade projects whose model seems opaque or unsustainable. It’s not just retail users that BitMEX has advice for: it does the same for traditional investors too, encouraging them to be cautious with Digital Asset Treasuries (DATs) that issue shares, the majority of which have since underperformed. “Don't confuse the wrapper with the asset,” writes BitMEX. In other words, buying shares in a Bitcoin company is not the same as buying Bitcoin.
There’s more to unpack in the perps powerhouse’s anniversary special – much more. Whether you’re a BitMEX user or not, it’s worth a read in full. The OG exchange has been around the block a few times, and its life lessons are as impactful as they are invaluable. Read, learn, and then apply them to your trading and DeFi strategy moving forward.
