BitMEX is an “OG” in the crypto space, as it was the first derivatives exchange to reach serious traction in 2018-2019 and is an innovator in the derivatives space. The exchange is often credited for popularizing perpetual swaps, which closely resemble futures but remove the inconvenient expiry mechanic by introducing a continuous funding rate.
BitMEX was also born in an era when stablecoins were nowhere near as prominent, and that meant accepting Bitcoin (BTC-USD) and Ether (ETH-USD, Ethereum) as collateral. In a nutshell, users could long and short BTC while holding BTC collateral, which sounds a bit like dark magic — but it works.
Since its early days, BitMEX has grown and changed, including fresh new leadership with Stephan Lutz, who became CEO in November 2022. As a seasoned veteran of PwC, Deutsche Börse, and other financial institutions, he brings a balanced approach of tradition and innovation to the company.
We sat down with him to learn more about how he sees the market evolving, how traders can navigate the quiet markets of this year, and talk about BitMEX’s plans and vision.
How would you characterize 2023 in markets? Major assets definitely look quite “stable,” but are you seeing some underlying trends emerging that might explode later on?
SL: Market volatility and the risk-reward ratio are low, as is the appetite of traders and institutional investors. This is largely due to events in 2022 and regulatory uncertainty in the U.S. Price action today closely follows the news cycle, indicating that interest in crypto remains high, with people eagerly awaiting the next significant development.
So far this year, we have yet to see a killer crypto adoption use case that would generate the buzz and news cycle that attracts new inflows. One example may be liquid staking, as we’re seeing more and more liquid staking protocols available after the Ethereum Shanghai upgrade in April. The sector has seen significant growth and is expected to continue to expand next year.
What’s your take on the crypto cycles? With the halving coming up next year, some people see it as an inevitability that another bull market will come in 2025-2026.
SL: Cyclical patterns in the crypto market are not too dissimilar from traditional financial markets. Based on previous halving events, volatility is expected before and after, with the potential for upward momentum. The upcoming halving in April is highly anticipated, especially since interest rates are reportedly expected to be lowered starting in Q2 2024.
As much as we hope Bitcoin could become an effective inflation hedge, thus building up the next bull run, I believe it could only be further elevated if there’s a strong crypto adoption use case for mass retail, such as ETFs.
In Twitter discussions, a lot of people describe bull markets as PvE (player vs. environment), while bear markets become PvP (player vs. player). What does this mean in practice?
SL: PvE traders who primarily profit from the overall market trend are usually observed during bull markets. In contrast, PvP traders compete against each other instead of betting on the market environment — a phenomenon more commonly seen during bear markets.
I won’t judge on who are the more advanced traders, but at BitMEX, we can see that our volumes in the bear market are relatively stable compared to our competitors, indicating we have a larger group of PvP traders.
BitMEX was synonymous with “degen” retail trading in the 2018-2019 bear market. Would you say the same thing in 2023?
SL: The story of BitMEX mirrors the overall evolution of the crypto market — explosive beginning, then challenges, and now a transformation with a more diversified product portfolio.
The perpetual swap we invented was a blessing for this industry and remains one of the greatest innovations in finance. It was the right product when users wanted to participate in the market upwinds but were worried about the security of their token. That’s why we have put so much emphasis on our wallet security and risk management system.
For some time in 2021 and 2022, this looked like a competitive disadvantage when other platforms were listing every s…coin under the moon. Come late 2022, we have proven that BitMEX is the exchange for experienced and professional traders.
Whilst others worry about a stablecoin depeg, our traders enjoy trading Bitcoin-margined contracts. To me, this proves that our traders have shifted from a practice of speculative trading to clearly defined strategies with long-term PnL (profit and loss) in Bitcoin.
Traders usually make money on volatility, be it upward or downward. It’s likely that many smart traders profited greatly from the dramatic events of 2022, but in a period such as right now, what can traders do?
SL: Opportunities are available if you are a skilled trader, and it’s just as important to diversify your portfolio and manage your risk exposure, especially in times of a quiet market. At BitMEX, we are launching several products to support our traders in this environment, such as our recent pre-IEO futures contracts like SEI futures that enable traders to capitalize on price fluctuations around listings through derivatives.
What are the advantages of using derivatives such as perpetual swaps compared to spot margin trading?
SL: Derivatives such as perpetual swaps allow traders to reduce their capital exposure on an exchange whilst amplifying profit and loss through leverage as opposed to spot margin trading, where full capitalization is required for traders to trade the desired position size.
Meanwhile, derivatives products can minimize traders’ risks through limited exposure to the underlying asset, compared with spot margin trading that involves direct trading of the actual asset in the spot market, with all the custody dangers that brings.
A second, often underestimated benefit of perps and futures over spot or spot margin is that futures can be used to trade varying price expectations even before a spot market is available. This is particularly valuable for Pre-IEO projects.
BitMEX is the creator of Perpetual Swap, the most traded crypto product of all time. To date, that has generated over 3 trillion in total volume on BitMEX alone, suggesting it is the product that our traders find most profitable and desirable.
Do you see option derivatives as an interesting tool in this environment? What else is BitMEX working on for its products?
SL: In the past few months, BitMEX has made great progress in ramping up products and tools to help our traders profit from the current market and improve their trading skills.
It is very possible for us to list options if we see market demand, and we do recognize its potential for professional traders.
Recently, we launched a few other innovative features — for example, Guilds, a social trading feature that has generated over $400 million [in] trading volume in less than a month since its launch. Guilds users are incentivized to level up their skills by learning from their peers whilst making a profit through competing against other Guilds and participating in our weekly competitions.
We also launched the aforementioned pre-listing futures contracts for SEI and others and a few other products for traders, such as XBTETH, a perp for trading the ETH/BTC ratio collateralized with Bitcoin.
