Episode Summary
Executive Summary: Laura Shin interviews BitMEX co-founder Arthur Hayes about BitMEX’s derivatives-only crypto exchange model, extreme leverage, and expansion into options, savings, and stock-derivative products. Hayes argues derivatives are the most defensible crypto business, that retail traders drive crypto growth—especially in Asia—and that Bitcoin’s volatility creates opportunities for both trading and structured products. He also shares bullish views on Bitcoin, critiques ICOs/SAFTs, and predicts coexistence between crypto and state-issued digital fiat.
Main Topics: BitMEX’s derivatives-only exchange model (Priority: 5/5): Hayes explains that BitMEX does not trade spot crypto; it offers synthetic, margin-based derivatives where users deposit Bitcoin as collateral and trade long/short contracts with P&L denominated in Bitcoin. Leverage, liquidation, and risk management (Priority: 5/5): The conversation breaks down how BitMEX’s high leverage works, why 100x leverage is mostly a headline number, and how liquidation limits losses to posted margin rather than creating broker debts. Product expansion: options, savings, and stock exposure (Priority: 4/5): Hayes outlines BitMEX’s newer options products and future plans for Bitcoin-backed savings products and fully collateralized access to single-stock equity swaps, especially for users in underbanked regions. Why derivatives beat spot trading (Priority: 4/5): He argues spot crypto trading will commoditize and that derivatives offer greater liquidity, defensibility, and monetization, drawing parallels to FX markets where derivatives dwarf spot volumes. Crypto’s geography and retail base (Priority: 4/5): Hayes says crypto is still a retail-driven phenomenon, especially in Asia, where low banking access and strong trading culture make crypto more compelling than in the U.S. or Western Europe. 2017 crypto boom and market structure (Priority: 4/5): He describes 2017 as a year of narrative breakthroughs—$1,000 Bitcoin, media attention, ICO mania, the Bitcoin Cash fork, SegWit2x fallout, and CME/CBOE futures launches—that helped drive Bitcoin to $20,000. ICOs, regulation, and future monetary systems (Priority: 5/5): Hayes criticizes most ICOs and SAFTs as corrupted by private funding dynamics, while predicting that governments will increasingly push digital fiat/cash systems that coexist with privacy-focused cryptocurrencies.
Key Arguments: BitMEX’s core value is providing a fair, two-sided derivatives marketplace rather than a spot exchange; this makes the business more scalable and defensible than commodity-like spot trading. Extreme leverage is not equivalent to unlimited downside because BitMEX liquidates positions before losses exceed collateral, unlike some traditional margin arrangements that can leave traders owing money. Retail traders—not institutions—remain the main source of crypto volume, particularly in Asia where demand for speculation and financial products is strongest. Bitcoin’s high volatility creates opportunities for structured products, including yield-bearing savings products that effectively monetize volatility. Spot crypto trading fees will trend toward zero, so exchanges should move up the value chain into derivatives and other financial products. Crypto adoption is stronger in developing markets with weak banking access, where 24/7 trading and alternative financial products offer clear utility. Most ICOs have degraded from community-driven fundraising into VC-style private allocations via SAFTs, reducing their openness and transparency. State-issued digital currencies will likely grow because governments want direct control over payments, taxes, and monetary policy, while cryptocurrencies will persist for privacy and cross-border utility. The 2017 bull market was driven by successive removal of psychological and technical objections to Bitcoin, culminating in mainstream validation from CME/CBOE futures launches. BitMEX’s research publications are intended to raise the quality of discourse in crypto and educate traders rather than merely market products.
Data Points: BitMEX average daily volume: about $3 billion/day - Hayes said this was the platform’s average daily volume in April/May. Year-over-year volume growth: 8,500% - BitMEX volume growth from 2016 to 2017. Average leverage used: about 8.5x - Hayes said most users do not use full 100x leverage. Maximum headline leverage: 100x - BitMEX’s most notable leverage offering. Liquidation threshold on popular perpetual swap: 0.5% adverse move - For 100x leverage, maintenance margin and liquidation mechanics mean a half-percent move can trigger liquidation. BitMEX trading fee: net 5 basis points - Hayes cited this as the fee on the most popular product. 2017 Bitcoin peak discussed: $20,000 - Referenced as the year’s climax after futures launch and narrative shifts. Bitcoin milestone earlier in 2017: $1,000 - Hayes described it as a major psychological breakthrough. Historical resistance level: $300 - He said Bitcoin broke above this in 2015 as a major milestone. Bitcoin price target prediction: $50,000 by year-end - Hayes explained the target as a round-number extrapolation from prior appreciation. Potential weekly savings yield: 1% a week - Hayes described a wholesale structure for Bitcoin savings products. Bitcoin volatility used for structured products: 100%-120% annualized - He compared Bitcoin volatility to equities to explain yield generation. BitMEX revenues last year: around $80+ million - Hayes referenced a Bloomberg figure for annual revenue. Hard fork-related basis trade: futures at par/premium then deep discount - He described profitable trades around Bitcoin Cash and other forks. Possible launch timing for stock products: Q3 or Q4 of that year - Hayes said Bitcoin-collateralized single-stock access would roll out later in the year.
Pivotal Quotes: "I think spot trading of crypto will tend to zero. In terms of the fees." — Arthur Hayes: He explained why BitMEX prefers derivatives over spot trading. "A digital society needs digital cash." — Arthur Hayes: He described why governments will issue electronic fiat while crypto serves privacy and alternative-use cases. "Most ICOs are dog shit." — Arthur Hayes: He criticized the deterioration of ICOs into SAFT-driven private fundraising.
Implications: The episode frames crypto’s next phase as a shift from spot speculation to derivatives, structured products, and institutionalized infrastructure. It also suggests Asia and emerging markets will remain crucial adoption engines, while regulation and digital fiat may coexist with permissionless crypto.