Crypto market digested Terra blockchain crash: BitMEX CEO

BitMEX is among the exchanges that have been affected by the liquidation of crypto hedge fund Three Arrows Capital following the collapse of the Terra ecosystem.

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

How has the crypto winter impacted the derivatives industry?

Everyone calls the price crash a crypto winter, but to me it’s more of a correction. We’ve had two or three years of extreme growth. This type of growth is not a healthy development without some corrections, neither in the mainstream 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 the rise in inflation. The crypto world is not in a vacuum per se. 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 of derivatives is exponentially greater than the spot side. Volumes traded on derivatives have not changed much and are more or less stable.

Also, you have to distinguish between two things. One thing is the price, for example, bitcoin, which is generally considered an indicator of the health of the market. Naturally, that price has come down. But derivative trading volumes when you look at the top 10 exchanges haven’t changed much. So, there were weaker trading days and the market capitalization of the traded crypto naturally decreased due to the drop in value, but the trading itself did not suffer too much.

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?

There isn’t much needed for recovery at this point. We are seeing strong inflows on our platform and I expect the same for other exchanges, especially on the retail side. So I think there is already a gradual recovery underway. Interest and demand, especially from the institutional side, are on the rise.

Do you have any plans specific to India? Looking for M&A opportunities here?

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

Would you wait for regulatory clarifications before doing anything?

Yes, I think more clarity is needed. The regulation does not need to be fully implemented, which is very difficult for the regulator because they are dealing with something that is always evolving. We need a stable leadership, and India can play a leading role globally.

Can ether overtake bitcoin as the biggest token, if and when the new rally comes?

We are bitcoin maximalists, so for us it’s a tough sell. But we are also big fans of ether. There is a lot of potential in the price of ether, 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 this 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 collapse of the Terra blockchain?

One or two players may still be affected by the Terra incident, but no, I think the market has more or less digested that. We are coming out of a situation where some companies were not paying attention to the risk and security aspects. It is strange that people expect double digit returns and expect no risk. I think that’s part of the maturation 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 privates are there and the privates have a different risk profile than the governments.

Back to the collapse of the Terra blockchain. 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 repetition?

The impact was very low. We had a secured loan (about $6 million) and that was impacted. It is normal business behavior for trade participants to have trade loans. Now, this is the usual situation in the industry. We had a very small outstanding loan compared to BitMEX’s total profit and loss. And it was fully guaranteed. So there was no impact.

Nevertheless, we are adjusting our risk monitoring tools. Three Arrows Capital has long been a very solvent and solid partner. So it came out of nowhere. Like everyone else, we need to adjust and recheck our risk matrices. The most important thing is that the loan has been secured. Also, it wasn’t customers’ money, so the impact on users was nil. Moreover, the impact on the business was also extremely low.

Is the worst of the crypto bear market behind us?

We may not see a significant correction again, but there could be some dips along the way. But I would say we’ve seen the worst. Will we once again see a huge recovery in the price of bitcoin? 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 crypto and that’s a bullish sign.

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