TL: DR

BitMEX achieves $1 trillion in notional annual trading volume from averaging 8.6x leverage per trade

Despite their success, BitMEX insurance to notional trading volume ratio is far too small for the level of activity on the exchange

The sheer size of volume created by leverage trading calls into question what the primary utility for Bitcoin is at the moment

When we look at the top exchanges in the crypto space, BitMEX seems to exist in a category of its own.

While Binance, Coinbase, and OKEx are continually announcing new partnerships and pushing the barrier to help cryptocurrencies achieve mainstream adoption, BitMEX sticks to the lane it carved for itself as a platform for speculating for or against the price of Bitcoin and other major cryptocurrencies. In addition to providing some of the most high-quality market research in the industry, the exchange has quietly dominated the trading side of the market by offering sophisticated financial products (like futures and margin leveraged trading) to the mass market of risk-taking retail traders.

Average leverage of 8.6x: $1 trillion notional volume

Just today, some statistics were released that demonstrates how successful this model of sophisticated trading for the masses has been for BitMEX. It was reported on their blog that BitMEX notional annual trading volume is around $1 Trillion (!). Yes, you read that correctly, $1 trillion in notional trading volume.

Now you might be wondering why that doesn’t make BitMEX by far the most dominant crypto exchange. Well, the key word to focus on is notional value. The trillion dollars in volume doesn’t accurately refer to the value flowing through BitMEX, but rather incorporates leverage, of which the average leverage used on BitMEX is an astounding 8.6x.

So this means the average trader on BitMEX is buying and selling Bitcoin with 8.6 times more money than on any other exchange. If we take away the 8.6x average leverage per trader, we get about $116 billion in annual trading volume on BitMEX (divide 1 trillion dollars by 8.6 = $116billion).

Although this is still incredibly high, it would fall below the annual trading volume of Binance, which is estimated to be about $198 billion (based on the last 30 days average volume).

Little-to-no insurance backs BitMEX high Notional trading volume

This $1 trillion number was stated in the context of how much money exists in the BitMEX Insurance fund. Currently, the BitMEX insurance fund has 21,000 Bitcoin (or $70 million at current BTC price). This represents 0.007% of BitMEX notional annual trading volume of $1 Trillion. Although this ratio is slightly better than the insurance to trading volume ratio at CME’s exchange, it shows that BitMEX winning traders are actually more exposed to risk because the BitMEX ratio is based on notional trading volume, while the CME ratio is only based on trading volume.

Could Bitcoins primarily utility be margin trading?

The implications of the $1 trillion annual notional trading volume are quite significant. With an average of 8.6x leverage, this makes BitMEX one of the heaviest single users of Bitcoin. It also implies that despite the push by organizations all over the world to make Bitcoin a medium of exchange or store of value, this data suggests that one of the most significant use cases for Bitcoin is the settling of bets between traders regarding Bitcoin itself. Ultimately, BitMEX is honest about its role as an exchange for speculative trading.

Despite what the critics may say about margin and futures traders ruining the markets, these type of trading models are bringing unprecedented levels of volume into the crypto markets, and may very well be responsible for propelling us into the next bull cycle.

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