Crypto market has digested Terra blockchain collapse: BitMEX CEO

BitMEX is among the exchanges affected by the liquidation of crypto hedge fund Three Arrows Capital in the wake of the collapse of the Terra ecosystem.

Alexander Höptner, CEO of BitMEX, spoke to Mint about crypto winter, the impact of the Terra blockchain collapse on the exchange and India plans. Edited excerpts:

What has been the effect of crypto winter on the derivatives business?

Everyone calls the price drop a crypto winter, but to me it’s more of a correction. We have seen two or three years of extreme growth. This kind of growth is not a healthy development without some correction, neither in the classic financial world nor in the crypto world. Let’s not forget that the global macroeconomic environment has changed a lot with the war in Ukraine and rising inflation. The crypto world is not in a vacuum just by itself. So a correction was inevitable at some point. And given the macroeconomic environment, it was more or less obvious that something was going to happen.

The trading volume for derivatives is exponentially more than the spot side. Derivatives trading volumes did not change much and are more or less stable.

You should also distinguish between two things. One thing is the price, such as bitcoin, which is usually taken as an indicator of market health. Naturally, the price dropped. But derivatives trading volumes when you look at the top 10 exchanges didn’t change much. So there were weaker trading days, and the market value of the traded crypto naturally dropped due to the value dropping, but the trade itself didn’t take too much of a hit.

Stock markets are showing signs of recovery, but crypto is still stuck in a range. What will be the factors that will now push the crypto markets higher?

It doesn’t take much to recover at this point. We are seeing net inflows on our platform and I expect it to be the same for other exchanges as well, especially from the retail side. So I think there is a gradual improvement already underway. Interest and demand, especially from the institutional side, is definitely increasing.

Do you have any India-specific plans? Are you looking at any M&A opportunities here?

When you look at the future of crypto, you have to look at India. India has great potential. It has seen fairly healthy adoption despite regulatory uncertainty. Therefore, India is definitely a market, which is extremely interesting for BitMEX. I believe that currently BitMEX as well as other exchanges are closely monitoring regulatory developments. Therefore, we are definitely looking at partnerships or mergers and acquisitions.

Will you wait for regulatory clarifications before taking action?

Yes, I think more clarity is needed. The regulation does not have to be fully implemented, which is very difficult for the regulator, as they are dealing with something that is still changing. We must have a stable direction, and India can have a leading role globally.

Could ether overtake bitcoin as the largest token, if and when the fresh rally kicks in?

We’re bitcoin maximalists, so for us it’s a tough sell. But we’re big fans of ether too. There is a lot of potential in the ether price, as well as in the technology. We are extremely bullish and I personally am also bullish on ETH. Bitcoin is an alternative currency, and in that sense ETH can have a different role. So, it’s not so much about beating bitcoin, but ether will probably have a more active role.

Has the market recovered from the Terra blockchain collapse?

There may be one or two players still affected by the Terra incident, but no, I think the market has more or less digested it. We are coming out of a situation where some firms did not take risk and security aspects into account. It’s hard for people to expect double-digit returns and not expect any risk. I think it is part of the maturing of the market.

But the problem is that central banks are reluctant to offer stablecoins themselves. We need government stablecoins, and we need private stablecoins. But in the absence of these, only the private ones are there and the private ones have a different risk profile than the state ones.

Coming back to the Terra blockchain collapse. In the aftermath, we saw the bankruptcy of Three Arrows Capital (3AC), and BitmMEX, along with a few other exchanges, liquidated positions in 3AC. What are the lessons learned and what steps are you taking to avoid a repeat?

The impact was very low. We had a secured loan (about $6 million) and it was affected. It is normal trading behavior that for trading participants there are trade loans. Now this is the usual situation in the industry. We had a very small loan outstanding with respect to the total profit and loss of BitMEX. And it was completely secured. So there was no impact.

Nevertheless, we are adjusting our risk monitoring tools. Three Arrows Capital was a very solvent and solid partner for a long time. So it came out of the blue. Like everyone else, we need to adjust and double-check our risk matrices. The most important thing is that the loan was secured. In addition, it was not the customers’ money, therefore the impact on the users was zero. The impact on the company was also extremely small.

Is the worst of the crypto bear market behind us?

We may not see a significant correction again, but there may be some falls along the way. But I’d say we’ve seen the worst of it. Will we see a huge rise in bitcoin price again? I doubt the price will go to $100,000 or $80,000 this year. When I listen to family offices talking to funds and banks, they all want to go to crypto, and that’s a bullish sign.

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