Roubini’s “The Great Crypto Heist”, Amid CFTC Probe BitMex Bleeds $524M in Outflows


Nouriel Roubini’s aka Dr. Doom’s severe censure of the crypto derivatives platform, BitMEX, has reportedly landed the company in serious trouble. BitMEX, amid rumors of a full-fledged CFTC probe, experienced $524M in outflows in July while the rest of crypto community enjoyed a bull-market. 

Did Arthur make a mistake by meddling with Permabear Roubini?

The chain of events leading to BitMEX losing over half a billion dollars started with a debate between Nouriel Roubini, economist and crypto skeptic and Arthur Hayes, CEO of BitMEX. 

At the 2019 Asia Blockchain Summit at Taipei, Roubini was invited to debate with Hayes on the subject of cryptocurrencies – whether they are a scam or the future. Just a few days before the debate, Roubini had tweeted on an update by BitMEXResearch about BitMEX achieving over $9 billion in trading volume and $1 billion in open interest on the Bitcoin perpetual swap contract. Roubini’s comment implied that these figures were not reliable as 95% of all bitcoin transactions on a typical exchange were fake.

Source: Twitter

In the debate, Roubini maintained his typical hostile attitude towards cryptocurrencies.

He claimed that the cryptocurrency industry was characterized by “shitty behavior” with scammers and criminals and that Bitcoin was not “not secure, not decentralized and is not even scalable”. 

He also shared his view on other emerging technologies including artificial intelligence (AI), Big Data, the Internet of Things (IOT) saying that the revolution in the fintech space was already happening with these technologies and it did not need cryptocurrencies. “We don’t need that cesspool of stinking shi*coins,” stated Roubini. 

Hayes argued for the value propositions offered by cryptocurrencies, especially digitization of money and decentralization. “In 50 years, if Alibaba, Facebook, and Google control everything, people will like that thing that isn’t controlled by the large companies. Bitcoin won’t be a niche market,” Hayes emphasized.

The debate also saw discussion around fake volumes on crypto exchanges, regulatory uncertainty and Facebook’s upcoming Libra cryptocurrency.

Roubini’s “The Great Crypto Heist”

Nearly two weeks after the debate, Roubini attacked cryptocurrencies again with his article “The Great Crypto Heist”. The article began with inflammatory remarks on cryptocurrencies and regulators’ attitude towards them –

“Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.”

The article went on to describe the problems with BitMEX, namely, its unregulated nature and that it’s business model that involved “ peddling to “degenerate gamblers” (meaning clueless retail investors) crypto derivatives with 100-to-one leverage”. Roubini further explained that “with 100-to-one leverage, even a 1% change in the price of the underlying assets could trigger a margin call and wipe out all of one’s investment”.

Further, Roubini accused the platform of charging high fees and drawing the investors’ savings into a “liquidation fund” that was disproportionately large for avoiding counter-party risk. The crypto skeptic also shared that BitMEX insiders had revealed to him that the exchange was not doing anything to stop terrorists and other criminals from Russia and Iran who were using the exchange for money-laundering at a massive scale. 

The platform’s condemnation continued with Dr. Doom saying that it was not following adequate AML/KYC regulations and that US and UK investors, who were not allowed to use the platform due to regulations, were using it anyway by masking their IP addresses with standard VPN applications.

The severe consequences for BitMEX

Rumors suggest that the article and the Taipei tangle triggered CFTC’s probe into BitMEX’s operations. The probe, reportedly aimed at investing US investors’ accounts on BitMEX was announced on July 19, and by the end of July, the platform had experienced over half a billion dollars in outflows. 

BitMEX’s website has also dropped in popularity. From its #11,851 rank on July 19, it has dropped to #12,763 on BitMEX’s Twitter account was last updated on July 15, while Arthur Hayes also went silent on Twitter on July 12 and updated his account with a cryptic tweet on July 31. 

Hayes’ tweet has been trolled by Twitter users and they have accused him of being a coward and going undergoing when his company is going through a probe. 

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