We have passed through the ‘valley of death’

Crypto exchange BitMEX was built to weather the current market turmoil, caused in part by the failure of three US crypto-friendly banks within a week, said Stephan Lutz, the group’s acting CEO and CFO.

“The current market situation is actually what BitMEX was originally built for by our founders,” he told CoinDesk TV’s “First Mover” on Tuesday.

“Since the end of last year, we believe we have been through the valley of death,” he added. “We are seeing positive signs in the market and we are able to reap these benefits. We are very grateful that the ecosystem and community trust us as a true crypto exchange that is focused on crypto.”

Lutz said that if a crypto exchange is focused on derivatives, is safe, segregates client funds and has limited to no connection to the fiat world, it is likely to thrive. BitMEX, outlining its 2023 predictions in a new report, sees an increase in volumes and market share.

In the report, the exchange describes three scenarios it sees playing out this year for the crypto industry. In the first, risk appetite for high-quality cryptoassets is being restored as the pace of Federal Reserve rate hikes slows.

In that scenario, Lutz said, “we go back to quantitative easing [and] more money supply driving inflation” and in turn “driving crypto prices to the extent that you use crypto, especially bitcoin, as an inflation hedge.” He said that is what has happened in the last two weeks.

In the second scenario, investors remain cautious. According to Lutz, that means people are waiting “before making a significant return to crypto.” If they do invest, the report recommends looking for projects with legitimate use cases.

The third scenario depends on whether regulators embrace crypto and “the likelihood that some jurisdictions will figure out how to handle crypto regulation and therefore provide certainty for investors [on] how to deal with it,” Lutz said. That would then lead to increased transparency and trust in crypto players, he said.

Earlier this month, BitMEX co-founder Arthur Hayes proposed a stablecoin called nakaDollar (NUSD).

Hayes said the bitcoin and bitcoin derivative-backed token would be considered extremely liquid and attractive to traders. It would rely on member crypto firms to maintain a link to the US dollar.

Lutz said the token would be a “stable unit of account that is tied to the US dollar in terms of exposure, but without the risk of the current stablecoin system.”

Hayes’ nakaDollar idea is a “natural one, if you think about it,” Lutz said.

“We think that if it’s pursued—and there will be people who will take up the idea because it has to be a decentralized idea in a way to make it credible—that [nakaDollar] will truly be or can be a game changer in the entire crypto industry.”