Following the CFTC’s charge against BitMEX and its operators, the U.S. Department of Justice filed their own charges against the exchange’s four founders and executives for violating the Bank Secrecy Act. Immediately after the charges were brought, the crypto industry became ablaze with conspiracy theories about why the charges were brought now, with fake quotes from Arthur Hayes, BitMEX’s CEO, only adding fuel to the fire. As of press time, around 25 percent of the exchange’s Bitcoin reserves have been withdrawn.
CFTC’s charges against BitMEX send shockwaves through the crypto industry
The U.S. Commodity Futures Trading Commission (CFTC) announced yesterday that it filed a civil enforcement action, charging five entities and three individuals that own and operate the BitMEX trading platform with operating an unregistered trading platform and violating multiple CFTC regulations. Just hours after the announcement, the U.S. Department of Justice came out with its own charges against four executives and owners of the exchange, claiming they violated and conspired to violate the Bank Secrecy act.
Charges against Arthur Hayes, Benjamin Delo, Samuel Reed, and Gregory Dwyer date back as early as 2015, when the Department of Justice claims the first AML programs should have been implemented to the exchange. Reed was arrested at his home in Massachusetts yesterday and could be facing five years in prison.
News about the indictment sent shockwaves through the crypto industry, with Bitcoin’s price reeling from $10,900 to lows of $10,400. As one of the largest exchanges on the market, BitMEX has around $2 billion worth of BTC in storage—a dangerous fact that hasn’t eluded other market participants.
With so much on the line, theories as to why the CFTC and the DOJ decided to push the charges forward at the beginning of October began popping up on social media. As part of the federal government, both the CFTC and the DOJ’s fiscal year-end on Sep. 30. In practice, this means that October usually begins with a bang for these government agencies, as they chose the start of a new FY to start off lengthy and complex legal processes such as the BitMEX indictment.
Many also speculated that the CFTC and the SEC could use the beginning of the fiscal year to enforce more legal actions against companies in the crypto industry, continuing their aggressive push to regulate the space.
Fake quotes and massive withdrawals show the industry’s on its edge
The market was quick to realize the potential ramifications of charges like these and was quick to withdraw a massive amount of funds from BitMEX. According to data from CoinMetrics, In the 24 hours since the CFTC’s announcement, a total of 48,400 BTC was withdrawn from the exchange, with 10,600 BTC withdrawn during BitMEX’s regular withdrawal processing time earlier today. With BitMEX holding around 193,000 BTC in total, it means that it lost around 25 percent of its holding in less than 24 hours.
Chart showing BitMEX Bitcoin withdrawals in the past 24 hours (Source: CoinMetrics)
CoinMetrics’ data also showed that, out of the 48,408 BTC, a total of 13,787 BTC was withdrawn to Binance and Gemini, prompting many to speculate that this could be several whales moving their funds to other exchanges operating in the U.S.
Data from Skew indicated that long future positions on BitMEX have also began unwinding with a perceivable sense of urgency, as more and more traders rush to close their positions and leave the exchange.
Graph showing the annualized rolling 3-month basis for BTC futures on BitMEX (Source: Skew)
Adding fuel to the fire that erupted on social media was a series of fake tweets that were mercilessly shared both by the media and other users. Several tweets supposedly written by Arthur Hayes, the co-founder and CEO of BitMEX, began circulating on Twitter, where Hayes jokingly told Changpeng Zhao, the CEO of Binance, Justin Sun, the founder and CEO of Tron, and Sam Bankman-Fried, the founder and CEO of Alameda Research and FTX, that the CFTC was coming for them next.
Screengrab showing the fake tweets (Source: Twitter)
After several major media outlets quoted the tweets as coming directly from Hayes, the crypto community soon revealed that they were coming from a well-known Twitter user and were intended as a troll.