BitMex has been making the headlines lately for illegally offering crypto derivatives to retail investors along with other financial crimes as reported by various outlets. I am not going to go into the details, because it's been covered to death by the media so you can do your own research and read up about the scandal.
BitMEX has been one of the most popular crypto exchanges on the planet with only Binance able to compete, and you know why? Due to both these exchanges offering leverage trading. Leveraged trading is nothing new for stock traders, but traditionally stocks don't move as much as crypto so leverage can still be used carefully in these more mature markets.
Leveraged trading is often used by investment institutional investors as they have trades that can offset the losses and capital for margin calls in a risk-adjusted portfolio.
As for retail, they lever up their trades, and the majority get rekt, making it very profitable for the platform and market markers. Trading with leverage isn't a bad thing, but as an unsophisticated investor thinking they can make 100x gains, its more of a gamble then gambling.
Attracing noobs to get rekt
BitMex had a very attractive affiliate program and YouTubers and shillers alike, would promote leverage trading and buying and selling on the platform along with the signup rewards.
These shillers disgust me, as they were trading on their affiliate income and more often than not, avoiding leverage trading yet punting the product.
Millions of dollars from noob investors would be rekt each day. BitMex would happily give you a little something to start trading knowing full well they'll make it back and more once users set a levered up trade.
Each week a steady stream of these noobs would line up to get their money taken.
The longer and shorts of it
If this wasn't bad enough there are reports that there were market makers actively reviewing the level of longs and shorts on certain trades and then using the spot exchange to drive up or down the price against the positions with the more capital locked up.
If there were a lot of longs, Bitmex naturally has an incentive for the price to go down and if there are a lot of shorts, they would want the price to go up.
I realise trading is part of the crypto game, and people are making money in this field, but it cannot be the only way to make money in crypto. To me, it is an unproductive use of Bitcoin; spot trading is there to set the market price and make sure different exchanges are arbitraged more effectively.
Leveraged trading is meant to dampen volatile, but at these small-cap levels, there is no point in trying to do this, leverage trading will be more effective once the asset class is in the trillions.
Setting the president
Now that BitMex has been made an example of, it continues to show the malicious and outright failure of centralised exchanges. We've seen hacks and scandals with the likes of Binance and Kucoin, and we all are well aware these entities have no interest in anything else but owning as much of the crypto market cap as possible.
We've tolerated them as a means to an end, but I think it shows why P2P markets and decentralised exchanges are on the rise. Trust no company, trust no code, keep your crypto, keep your keys and trade with patience and within your means.
Don't be corrupted by ill-gotten gains.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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