The former king of derivatives, BitMEX, launched an airdrop for self-rescue. Is it too late?

Original Title: "BitMEX's Expansion for Self-Rescue"

Author: Kyle

On December 21, the news of BitMEX issuing platform tokens did not cause much of a stir. This long-established cryptocurrency derivatives trading platform seems to have faded from people's view, as its plans to "soon launch spot trading, finance, and custody services" quickly drowned in the buzz surrounding DAOs, the metaverse, and other hot topics.

BitMEX is no longer the leader in cryptocurrency derivatives trading. During the "3.12" crash in 2020, BitMEX experienced a 25-minute outage that triggered a crisis of trust, resulting in a 25% decrease in the amount of Bitcoin held on the platform within two weeks, and daily trading volume rapidly declined to below that of the then three major "HBO" platforms.

In October of the same year, the U.S. Department of Justice, along with the Commodity Futures Trading Commission (CFTC), filed a lawsuit against BitMEX, alleging violations of anti-money laundering laws, and arrested CTO Samuel Reed, leading to further declines in BitMEX's business.

Now, new CEO Alexander Höptner has formulated a strategic transformation plan named "Beyond Derivatives" for BitMEX, with the issuance of the platform token BMEX and the launch of spot trading being key steps. However, in the competitive landscape with both new and established trading platforms like Binance, OKEx, FTX, and Bybit, BitMEX's journey of expansion and self-rescue is bound to be fraught with challenges.

BitMEX's Delayed Comprehensive Strategy

Once starting with cryptocurrency derivatives trading, BitMEX has entered a strategic transformation phase after experiencing a significant decline in market share.

On December 21, BitMEX CEO Alexander Höptner announced that the platform token BMEX would be launched in 2022, along with a series of new products and features, including Fiat-onramp, spot trading, and BitMEX Earn. These are all part of its "Beyond Derivatives" strategy.

In April of this year, shortly after taking office as BitMEX CEO, Alexander Höptner published a blog post titled "Beyond Derivatives: The Future Path of BitMEX," stating that it was time for BitMEX to undergo a strategic shift, and his personal mission was to lead BitMEX from a cryptocurrency derivatives exchange to a "larger exchange."

BitMEX has formulated the "Beyond Derivatives" strategic plan

"A larger exchange" means business expansion. According to the plan at that time, BitMEX would add five global business departments: spot trading, brokerage, custody, information products, and an academy to achieve its goals, with the launch of the platform token appearing to be an "appetizer."

It is reported that the first phase of BMEX will be distributed in the form of airdrops, mainly to new registered users, trading users, and users who invite new registrations, with more trading volume resulting in more airdrop rewards. The second phase of distribution is expected to begin in the second quarter of next year, when BitMEX will launch its spot trading and list BMEX.

Currently, the BMEX white paper has not been released, but it is confirmed that its total supply will be 450 million, to be minted all at once and distributed over a five-year period. The vast majority of BMEX will be used to reward users and develop the BitMEX ecosystem, with 20% allocated to BitMEX employees.

Similar to other trading platform tokens, the official introduction states that BMEX can be used for trading fee discounts, early access to new products and their preferential conditions, exclusive gifts and sports ticket lottery opportunities, and free access to BitMEX Academy courses. Additionally, BitMEX will repurchase and destroy BMEX quarterly.

Such usage scenarios and deflationary mechanisms for the platform token make cryptocurrency users feel as if they have returned to three years ago, as this process seems quite outdated. Why is BitMEX, established in 2014, only now issuing a platform token? The most direct reason is obviously fundraising.

After establishing its expansion plan, BitMEX's funding needs have also increased. According to reports, BitMEX restructured its leadership team in 2021, set up multiple new business lines, nearly doubled its staff, and opened offices in Switzerland (BitMEX Link) and Vancouver. These new moves all indicate a significant increase in operational costs.

Moreover, from the requirements for the first phase of airdrop distribution, it is clear that the platform token is also an important means for attracting new users and activating existing ones. It evidently hopes to use BMEX to attract more new users and enhance trading activity on the platform.

Whether these measures will be effective remains uncertain. After all, current trading platform tokens have already moved on-chain. Take BNB as an example; this Binance platform token has long become on-chain fuel, with attributes, functions, and market capitalization that are incomparable. In contrast, BMEX's competitiveness appears weak, and BitMEX's path to diversification seems a bit late.

Self-Rescue Journey: Competition Pressure Cannot Be Underestimated

By increasing spot trading and issuing platform tokens, BitMEX seems to be walking in the shadow of history, and the reasons for its proactive changes are quite apparent, as it has fallen from grace in the derivatives market.

Rewinding two years, BitMEX was the absolute leader in the cryptocurrency derivatives trading market. With its first-mover advantage, it once held over 60% of the cryptocurrency derivatives market share. However, as established spot exchanges like Huobi and Binance began to launch derivatives trading, and new platforms like Bybit and FTX emerged, BitMEX's market share was gradually eroded.

A significant market shift occurred during the "3.12 crash." From March 12 to 13, 2020, Bitcoin plummeted from around $8,000 to about $3,600, triggering a market sell-off. During this period of extreme volatility, BitMEX experienced a 25-minute outage on March 13, leading to the liquidation of many users' positions.

BitMEX later claimed it suffered two DDoS attacks that caused the interruption. However, not everyone believes this explanation. Some traders reported that BitMEX incorrectly liquidated their leveraged positions during the outage, resulting in losses of 30 BTC.

This outage damaged BitMEX's reputation. Some users believe that in a market where many trading platforms are available, if one exchange fails to satisfy users due to server issues, then regardless of how short the downtime is, people will start considering other options.

Indeed, after the outage, the amount of Bitcoin held on BitMEX decreased by 25% within two weeks, and its daily trading volume fell below that of the three major platforms known as HBO (Huobi, Binance, OKEx), losing its leading position.

Worse situations followed. In October 2020, the U.S. Department of Justice and the CFTC jointly filed a lawsuit against BitMEX. The Department of Justice alleged that BitMEX violated U.S. anti-money laundering laws and filed criminal charges against the exchange's founders and executives, arresting CTO Samuel Reed; the CFTC planned to file a civil lawsuit to terminate BitMEX's commodity derivatives business in the U.S. and demanded compensation for customers, among other things.

After the related lawsuits were exposed, BitMEX's users further dwindled, and trading volume gradually declined, heading downhill. According to data from CoinMarketCap on December 27, BitMEX ranked 17th in the derivatives platform trading volume leaderboard, with a 24-hour trading volume of $847 million, while the top-ranked Binance had $40.1 billion.

BitMEX's trading volume ranking has dropped to 17th

From the peak of being the leader in derivatives trading, BitMEX's crisis has emerged. Its current strategic shift is less about proactive change and more about a self-rescue path. However, given the current market landscape, BitMEX's business expansion is unlikely to recover quickly.

The biggest pressure on BitMEX still comes from fierce competition. Nowadays, platforms like Binance, OKEx, FTX, and Bybit are continuously attracting new users and dividing the existing market. Most of these exchanges cover comprehensive functions, including spot trading, derivatives, OTC, wealth management, and NFT trading. Moreover, leading platforms have extended their expansion into the public chain field, accumulating a large user base.

Meanwhile, BitMEX has shown signs of decline in the derivatives field it is most skilled in, and re-cultivating the spot market will face strong competition and liquidity challenges. After previous users left BitMEX due to trust issues, this trading platform clearly needs to make more efforts to regain old users and attract new players.

After announcing the issuance of the platform token, Alexander Höptner confidently stated, "As we transform BitMEX into a complete cryptocurrency exchange ecosystem, the launch of BMEX marks a rebirth." However, the changing market landscape is bound to make its expansion journey full of twists and turns.