The near-infinite reach of US finance laws into every area of cryptocurrencies (among other categories) is pretty staggering. The promises that cryptocurrencies want to gift to their users are continually sacrificed in the name of draconian regulatory compliance, regardless of the national borders (or lack-thereof) involved. It's particularly interesting to watch various cryptocurrency platforms slowly transform into that which they originally detested, not of their own will, but via the strong guiding hands of US agencies.
In this case Bitmex was not incorporated in the US, informed US residents that they were not allowed to use the platform, and even blocked all US IP addresses from accessing their services as well. As the article mentions, yes, some people got around this with VPN blocks, lying about their location, and more. Apparently the US views the solution to this loophole as arresting the founders of Bitmex, regardless of their country of residence, for not complying with US laws. As another commenter reminded me to mention, Bitmex also did not touch USD: they didn't allow withdrawals, deposits, nor transactions in USD, ever. The discrepancy between this treatment and that which established US megabanks receive is made perfectly clear by the latter section of this article, in which billions in fines are often paid in exchange for having purposefully committed blatantly illegal activity for profits on a massive scale.
Perhaps there is more to this story that we do not know (I see accusations of a lack of solvency, front-running, and other more serious activities), but if there is no true bombshell awaiting explosion here, I certainly hope his legal defense is sufficient for a solution in his favor.
An extra point to add to this: Bitmex isn't an exchange and never touched USD or any other fiat currency, you couldn't obviously use it to launder money (at least not in any way that you couldn't use any other custodial wallet to do so).
Essentially it is just a platform that lets non-US bitcoin users deposit bitcoin and place side bets on price of Bitcoin (and several altcoins, note that you couldn't deposit and withdraw those altcoins AFAIK, just place sidebets on their exchange rates).
It is easily (ab?)used as a gambling platform.
From a consumer protection perspective it's probably a disaster-- the vast majority of users lose their shirts. But I'm not aware of any accusation that there was widespread use by US persons. And CFD gambling houses are common in many places outside of the US.
These are both good points, I added to my comment that Bitmex didn't touch USD since it's relevant.
The gambling problem is absolutely true, but it's difficult to know how to approach it properly, since it's obvious that there's people gambling just as badly on brokerages in the US right now, primarily with options (especially Robinhood).
I think the risk surface with options can be significantly better-- e.g. if no margin is used for longs and if short calls are covered and short puts are cash secured, then the exposure is fixed and established upfront.
But I don't disagree that the there are much larger and more relevant gambling-in-the-guise-of-investing targets.
Also to be clear: I think there are legitimate investment uses of that product-- e.g. if you have a credible reason to believe the Bitcoin price will drop soon you could short a small amount with leverage while keeping the bulk of your holdings safe in cold storage. The extra fees and specific risks of the CFD may be offset by avoiding a need to touch cold coins. But I do also doubt that most users are using it that way.
It can be much better, but a quick glance at what a lot of retail investors are actually doing with options (basically just buying calls) shows a lot of high-risk and reckless gambling. While I'm fine with people choosing whichever risk level they desire, some of the images I've seen of e.g Robinhood UI's are pushing it far beyond what I'd say is reasonable (and perhaps even to the point of illegality), for example https://pbs.twimg.com/media/EtfOof8XIAMhaX6?format=jpg&name=...
Buying a three (?) month call which is out of the money by 4.8% is "medium risk" ?!?.
Too bad there isn't a date on that image so I can figure out what the black scholes probability of expiring worthless they consider 'medium risk' is exactly. -- Assuming it's 90 days, they consider a 63% probability of total loss "medium risk".
I'm not really sure where I'd draw the line but anything where my best model said total loss was more likely than not is certainly past the high risk line.
And high risk investments can be totally fine, treated as such. Presumably most users won't go broke losing one contract worth though it might hurt some (I'm assuming that isn't a mini option or some kind of split contract-- so we're talking about a $788 loss for one contract if it expires worthless). But if they call it "medium risk" I'm guessing people are going to buy more than one.
BitMex offers 100x leverage, which is quite dangerous in any market, but in one as volatile as cryptocurrency is almost certain to wipe out your account very quickly.
Actually I think it might be rather good for laundering money. Say you sell your shipment of cocaine for bitcoins - you put that in a tainted bitcoin wallet and send that to Bitmex and claim they are nothing to do with you. But actually you withdraw from Bitmex to a clean wallet where you claim the money came from your brilliant trading on that one.
It falls apart if bitmex share all their records with the revenue services but I don't think they do.
In a very non KYC way they don't ask for any proof of who you are. You can open an account for Mickey Mouse and if you send in bitcoin you are good to go.
That said there are probably less regulated exchanges out there for that kind of stuff. If you really wanted to launder large sums you might be better off setting up your own one.
That is the same deal for any custodial wallet. Deposit coins, withdraw different coins, everything is opaque unless they share records.
> That said there are probably less regulated exchanges out there for that kind of stuff.
That is believed to be a big part of the illiquid altcoin market.
Premine some altcoin, sell it at high prices to your dirty money account. Even where the exchange has "kyc" the launderer just needs a disposable identity for the dirty account that is good enough to pass it for a few days.
> The promises that cryptocurrencies want to gift to their users are continually sacrificed in the name of draconian regulatory compliance
The law isn't optional. Crypto doesn't change that.
> It's particularly interesting to watch various cryptocurrency platforms slowly transform into that which they originally detested, not of their own will, but via the strong guiding hands of US agencies.
The reality is that cryptocurrency exchanges aren't actually operated with ideological purity as a goal. They're profit-driven enterprises. They just want to be in the middle of the action and collect a percentage fee of all the money moving back and forth. They're not going to sacrifice profits in the name of arbitrarily resisting governments.
The law applies to juridictions. Parent comment reiterates that USA should have no jurisdiction over bitmex... But they do.
It's sort of like dragging Somali pirates to court in NYC. If it affects Americans, even indirectly, it matters.
You could argue that money laundering in any part of the world is connected to the drug trade in USA which harms citizens. This makes you automatically the target of us law enforcement.
> Parent comment reiterates that USA should have no jurisdiction over bitmex... But they do
The article is about a US citizen being arrested, in the US, for failing to obey US laws.
You can't simply circumvent the laws of a country by declaring your business to be operated in another country. That's not unique to the United States.
its exactly like how chinese human rights abuses bother the americans n europeans. the chinese always say thats interfering with their domestic policies.
> Apparently the US views the solution to this loophole as arresting the founders of Bitmex, regardless of their country of residence
The only person who's been arrested (Sam Reed) was arrested at his home in the United States.
Arthur Hayes, the main focus of this story, is a US citizen and spent most of his life in the US, though seemingly has lived in various countries of late. By virtue of being a billionaire, he can most likely reside whereever he likes. I cant see why that should make him immune from prosecution in the US (a Grand Jury found there was enough evidence to indict him, though this does not mean hes been found guilty of anything).
I don't think he should be immune to prosecution or above laws in any extraordinary way, to clarify. It seems from the article that due to covid there have been delays, but I assume he will face trial or settlement from the US sooner or later. I just think this particular set of charges seems to be lacking the level of evidence and merit we would want for something of their magnitude.
In this case Bitmex was not incorporated in the US, informed US residents that they were not allowed to use the platform, and even blocked all US IP addresses from accessing their services as well. As the article mentions, yes, some people got around this with VPN blocks, lying about their location, and more. Apparently the US views the solution to this loophole as arresting the founders of Bitmex, regardless of their country of residence, for not complying with US laws. As another commenter reminded me to mention, Bitmex also did not touch USD: they didn't allow withdrawals, deposits, nor transactions in USD, ever. The discrepancy between this treatment and that which established US megabanks receive is made perfectly clear by the latter section of this article, in which billions in fines are often paid in exchange for having purposefully committed blatantly illegal activity for profits on a massive scale.
Perhaps there is more to this story that we do not know (I see accusations of a lack of solvency, front-running, and other more serious activities), but if there is no true bombshell awaiting explosion here, I certainly hope his legal defense is sufficient for a solution in his favor.