Towards Understanding Cryptocurrency Derivatives: A Case Study of BitMEX

Since 2018, the cryptocurrency trading landscape has evolved from a collection of spot markets (fiat for cryptocurrency) to a hybrid ecosystem featuring complex and popular derivatives products. In this paper we explore this new paradigm through a study of BitMEX, one of the first and most successful derivatives platforms for leveraged cryptocurrency trading. BitMEX trades on average over 3 billion dollars worth of volume per day, and allows users to go long or short Bitcoin with up to 100x leverage. We analyze the evolution of BitMEX products-both settled and perpetual offerings that have become the standard across other cryptocurrency derivatives platforms. We additionally utilize on-chain forensics, public liquidation events, and a site-wide chat room to describe the diverse ensemble of amateur and professional traders that forms this community. These traders range from wealthy agents running automated strategies, to individuals trading small, risky positions and focusing on very short time-frames. Finally, we discuss how derivative trading has impacted cryptocurrency asset prices, notably how it has led to dramatic price movements in the underlying spot markets.