Finding a Trading Edge in a Bear Market: Interview with BitMEX’s Stephan Lutz

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BitMEX is an “OG” within the crypto house, because it was the primary derivatives alternate to achieve critical traction in 2018-2019 and is an innovator within the derivatives house. The alternate is usually credited for popularizing perpetual swaps, which intently resemble futures however take away the inconvenient expiry mechanic by introducing a steady funding price. 

BitMEX was additionally born in an period when stablecoins have been nowhere close to as distinguished, and that meant accepting Bitcoin (BTC-USD) and Ether (ETH-USD, Ethereum) as collateral. In a nutshell, customers might lengthy and quick BTC whereas holding BTC collateral, which sounds a bit like darkish magic — however it works.

Since its early days, BitMEX has grown and adjusted, together with contemporary new management with Stephan Lutz, who turned CEO in November 2022. As a seasoned veteran of PwC, Deutsche Börse, and different monetary establishments, he brings a balanced method of custom and innovation to the corporate.

We sat down with him to be taught extra about how he sees the market evolving, how merchants can navigate the quiet markets of this 12 months, and speak about BitMEX’s plans and imaginative and prescient.

How would you characterize 2023 in markets? Main property positively look fairly “steady,” however are you seeing some underlying developments rising which may explode in a while?

SL: Market volatility and the risk-reward ratio are low, as is the urge for food of merchants and institutional traders. That is largely as a consequence of occasions in 2022 and regulatory uncertainty within the U.S. Value motion at present intently follows the information cycle, indicating that curiosity in crypto stays excessive, with individuals eagerly awaiting the subsequent vital improvement.

To this point this 12 months, we now have but to see a killer crypto adoption use case that may generate the thrill and information cycle that pulls new inflows. One instance could also be liquid staking, as we’re seeing increasingly more liquid staking protocols out there after the Ethereum Shanghai improve in April. The sector has seen vital development and is anticipated to proceed to increase subsequent 12 months. 

What’s your tackle the crypto cycles? With the halving arising subsequent 12 months, some individuals see it as an inevitability that one other bull market will are available 2025-2026.

SL: Cyclical patterns within the crypto market will not be too dissimilar from conventional monetary markets. Based mostly on earlier halving occasions, volatility is anticipated earlier than and after, with the potential for upward momentum. The upcoming halving in April is extremely anticipated, particularly since rates of interest are reportedly anticipated to be lowered beginning in Q2 2024. 

As a lot as we hope Bitcoin might grow to be an efficient inflation hedge, thus build up the subsequent bull run, I consider it might solely be additional elevated if there’s a powerful crypto adoption use case for mass retail, corresponding to ETFs.

In Twitter discussions, lots of people describe bull markets as PvE (participant vs. atmosphere), whereas bear markets grow to be PvP (participant vs. participant). What does this imply in apply?

SL: PvE merchants who primarily revenue from the general market development are often noticed throughout bull markets. In distinction, PvP merchants compete towards one another as a substitute of betting available on the market atmosphere — a phenomenon extra generally seen throughout bear markets. 

I received’t decide on who’re the extra superior merchants, however at BitMEX, we will see that our volumes within the bear market are comparatively steady in comparison with our opponents, indicating we now have a bigger group of PvP merchants.

BitMEX was synonymous with “degen” retail buying and selling within the 2018-2019 bear market. Would you say the identical factor in 2023?

SL: The story of BitMEX mirrors the general evolution of the crypto market — explosive starting, then challenges, and now a change with a extra diversified product portfolio. 

The perpetual swap we invented was a blessing for this business and stays one of many best improvements in finance. It was the best product when customers needed to take part available in the market upwinds however have been fearful concerning the safety of their token. That’s why we now have put a lot emphasis on our pockets safety and danger administration system. 

For a while in 2021 and 2022, this regarded like a aggressive drawback when different platforms have been itemizing each s…coin beneath the moon. Come late 2022, we now have confirmed that BitMEX is the alternate for skilled {and professional} merchants. 

While others fear a couple of stablecoin depeg, our merchants take pleasure in buying and selling Bitcoin-margined contracts. To me, this proves that our merchants have shifted from a apply of speculative buying and selling to obviously outlined methods with long-term PnL (revenue and loss) in Bitcoin. 

Merchants often generate profits on volatility, be it upward or downward. It’s doubtless that many good merchants profited tremendously from the dramatic occasions of 2022, however in a interval corresponding to proper now, what can merchants do?

SL: Alternatives can be found if you’re a talented dealer, and it’s simply as necessary to diversify your portfolio and handle your danger publicity, particularly in occasions of a quiet market. At BitMEX, we’re launching a number of merchandise to help our merchants on this atmosphere, corresponding to our current pre-IEO futures contracts like SEI futures that allow merchants to capitalize on worth fluctuations round listings by derivatives.

What are the benefits of utilizing derivatives corresponding to perpetual swaps in comparison with spot margin buying and selling?

SL: Derivatives corresponding to perpetual swaps enable merchants to scale back their capital publicity on an alternate while amplifying revenue and loss by leverage versus spot margin buying and selling, the place full capitalization is required for merchants to commerce the specified place measurement. 

In the meantime, derivatives merchandise can reduce merchants’ dangers by restricted publicity to the underlying asset, in contrast with spot margin buying and selling that entails direct buying and selling of the particular asset within the spot market, with all of the custody risks that brings.

A second, usually underestimated good thing about perps and futures over spot or spot margin is that futures can be utilized to commerce various worth expectations even earlier than a spot market is obtainable. That is significantly worthwhile for Pre-IEO tasks.

BitMEX is the creator of Perpetual Swap, probably the most traded crypto product of all time. To this point, that has generated over 3 trillion in whole quantity on BitMEX alone, suggesting it’s the product that our merchants discover most worthwhile and fascinating. 

Do you see choice derivatives as an fascinating device on this atmosphere? What else is BitMEX engaged on for its merchandise?

SL: Previously few months, BitMEX has made nice progress in ramping up merchandise and instruments to assist our merchants revenue from the present market and enhance their buying and selling expertise. 

It is extremely doable for us to record choices if we see market demand, and we do acknowledge its potential for skilled merchants.

Not too long ago, we launched just a few different modern options — for instance, Guilds, a social buying and selling function that has generated over $400 million [in] buying and selling quantity in lower than a month since its launch. Guilds customers are incentivized to stage up their expertise by studying from their friends while making a revenue by competing towards different Guilds and collaborating in our weekly competitions. 

We additionally launched the aforementioned pre-listing futures contracts for SEI and others and some different merchandise for merchants, corresponding to XBTETH, a perp for buying and selling the ETH/BTC ratio collateralized with Bitcoin.


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