The popular Bitcoin derivatives exchange BitMEX stated that its impressive insurance fund, which today amounts to more than 21,000 BTC (about $ 75 million), is necessary to provide support for the margin trading model offered to users. In its blog, the company describes the principles of this model and the “unique challenges” that it faces when working outside the institutional financial system.

The BitMEX Insurance Fund

If you are a BitMEX insurance fund, you need it. Growth of BitMEX of The insurance fund's Provides a reasonable level of Assurance to winning traders for They That will of the BE Able to Attain Their expected profits https://t.co/IkfFwiJsr1 pic.twitter.com/gFadILjV8J

– BitMEX Research (@BitMEXResearch) February 11, 2019

The BitMEX insurance fund , as stated on the website of the exchange, is used to prevent the automatic closing of liquidated positions of traders (Auto-Deleveraging) by the corresponding exchange system. Thus, the fund grows at the expense of liquidated positions, buying them at a higher price.

A few weeks ago, Messari's Zip Foel, a cryptocurrency analyst at Messari, noticed that in 2018, the size of the BitMEX insurance fund grew, despite the falling price of Bitcoin, having increased since the beginning of the year by more than 18,000 BTC.

Size of BitMEX's Insurance Fund:

01 Jan 2016: 0 BTC
01 Jan 2017: 162 BTC
01 Jan 2018: 2,720 BTC
01 Jan 2019: 20,776 BTC

Now look at this. pic.twitter.com/EUdJJ5tcAf

– Zack Voell (@zackvoell) January 22, 2019

Also his attention was attracted by the fact that the growth of the fund is surprisingly correlated with the emission of new bitcoins.

Also, BitMEX's Insurance Fund Growth (an unbeatable benchmark) Bitcoin's monetary policy. pic.twitter.com/kcZ9cTGX5c

– Zack Voell (@zackvoell) January 22, 2019

Also, if you look at the latest CryptoCompare report , BitMEX accounts for the vast majority of all perpetual derivatives and futures – in the last three months of 2018, this indicator has consistently kept at 90-95%, significantly outperforming the regulated markets of CBOE and CME.

In its last entry, the exchange also mentions CBOE and CME, emphasizing that several protection layers are available to these institutions, including institutional clearing organizations and even government support, while BitMEX does not have such tools at its disposal.

It is for this reason, BitMEX insists, that it adopted the method of claiming the losing position of traders. With the help of this mechanism, the exchange makes payments to traders whose positions proved to be advantageous, and also replenishes the insurance fund. At the same time, BitMEX emphasizes, the insurance fund replenishes only in the event that the market liquidity is less than the supported margin.

BitMEX also recalled the episode that occurred in March 2017, when the insurance fund was completely eliminated within some five minutes – this happened after the price of the first cryptocurrency collapsed by 30% due to the SEC's failure to launch Bitcoin-ETF Winklevoss brothers . And, as they say in the message, it is impossible to exclude that this will happen again in the future.

Double Trouble: SEC refused to launch Winklevoss brothers Bitcoin-ETF

Critics, however, pay attention to the fact that funds from the fund periodically disappear without such critical situations, as in the case of the Winklowoss Bitcoin-ETF. Moreover, by questioning the appropriateness of this size of the insurance fund, independent cryptocurrency researcher Hasu also draws attention to the fact that in the case of the failure to launch the Winklevoss Bitcoin-ETF, the BitMEX insurance fund was only 66 BTC, that is, an insufficient amount to cover required payments.

So are BitMEX customers overinsured? The post gives a counterexample: In March 2017, the ETF was rejected, Bitcoin's price dropped by 30% and depleted the insurance fund, causing ADL to happen. What it doesn't mention: The fund had only 66 BTC in it.

– Hasu (@hasufl) February 11, 2019

According to available information, in 2018, the total trading volume of BitMEX was $ 965 billion. The commission income allows the stock exchange to rent the entire 45th floor of the Hong Kong Cheung Kong Center with a total area of 20 thousand square feet. According to Chinese media, the rental price is $ 600 thousand per month.

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