It’s fair to say that our decision to implement comprehensive know-your-customer (KYC) last year was one of the most consequential decisions in our company’s history. Six months on, with the benefit of hindsight, we also think it was one of the best decisions for our long-term future. Here’s why.
To put things in perspective, let’s zoom out. Revolutionary ideas like cryptocurrency (most notably bitcoin) are a once-in-a-generation occurrence. In disrupting the status quo, they – and the technologies that underpin them – spawn new industries, inspire believers and skeptics, and encourage even more innovation. The pace of change is dizzying – just a few years ago, many thought of bitcoin as ‘magic internet money’ with little worth.
Inevitably, such ideas attract scrutiny from governments and regulators. That was true last year, and it’s true now. We had long thought that comprehensive KYC would be a baseline requirement for crypto firms. In late 2019, we started to put in place the complex tech needed to scale this up.
In August 2020, we announced that all customers, new and existing, would need to complete full identity verification or else close their accounts and withdraw their funds. We knew that this move would not please all users, but we also knew it would be a positive move overall, and not spell the ‘end of BitMEX’.
There’s a critical difference between the comprehensive KYC that BitMEX put into place and the kind that proliferates at other trading platforms. BitMEX user verification is required for all users before they complete their first deposit, trade, or withdrawal. That’s not the case at other exchanges, where KYC is usually tiered. This means that these exchanges still allow users who have completed some or none of the identity verification steps to deposit, trade, and withdraw funds.
Fast forward to the end of December 2020 (and through a myriad of tech legwork to sort out kinks in the system), and we became the largest crypto derivatives platform with a fully verified user base. This certainly came with a cost – we lost users and volume. But a fully verified environment also brought some distinctly tangible benefits:
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- Better platform stability for all users – We’ve been beating the drum on this one for months, but it’s so important that it bears repeating. We’ve turned what was previously a weakness – consistent platform uptime during volatile market moves – into our biggest strength by implementing KYC and simultaneously upgrading our engine. This is also where we excel most compared to our competitors, who often buckle under a surge in trading activity. Looking at huge market moves in the past months, one exchange consistently demonstrated uptime with minimal overloads – BitMEX. When your strategy depends on being able to trade when it counts most, the importance of this cannot be overlooked – and is certainly worth the five minutes it takes to KYC.
- Improved market integrity – One thing that has been noticeably absent since the implementation of KYC is the reduction in suspicious cases of possible market manipulation. It turns out, unsurprisingly, that would-be bad actors prefer platforms with lax or no KYC. They are also deterred – or detected – by the market integrity partners we’ve added.
- Increased institutional participation – This was a natural implication of better market integrity and better platform stability, but we also think it’s due to the widespread belief among institutional players (and their influential compliance departments) that non-KYC’d platforms carry more inherent risk than their fully KYC’d counterparts.
- Establishing a platform for regulatory engagement – At a time when regulators are taking a more active stance on crypto derivatives all over the world, we’ve had our most promising discussions with regulators ever in the past few months. To date, few crypto derivatives platforms have succeeded in getting a license from an IOSCO jurisdiction. We want to be among the first, and we’re getting closer.
Finally, it’s worth emphasising that we’ve maintained our sterling record on platform and funds security. We’ve never lost user funds due to our best-in-class security and practice of holding user funds in cold storage.
We think the future of crypto will belong to platforms that establish responsible know-your-customer and anti money laundering policies alongside superior technical performance and trust. And it’s not just about earning trust with users – it’s about creating better, more reliable markets. KYC has been a huge step forward for us.
That’s All Good – But What’s Next for BitMEX?
We believe that crypto – led by bitcoin – is nothing less than the future of finance, and that its potential benefits for financial freedom, economic empowerment, and investing are revolutionary.
As the largest crypto derivatives exchange with a fully verified user base, we have a unique opportunity to contribute responsibly.
We’ve also stated our ambitions to grow fast into the spot, brokerage, and custody markets – and we’re hiring the very best of both the crypto and traditional worlds to get us there.
We are using the same relentless drive that made us the market leader to grow. And while we’ve maintained our attitude and our innovative edge, we’re a different company now. A little less Lamborghini, perhaps, but with the same long-term ambition to be at the forefront of delivering lasting change in digital financial markets.
We want the story of BitMEX to be one of a company that not only pioneered crypto derivatives with the invention of the perpetual swap, but also led the way in advancing crypto derivatives responsibly. And maybe a nice footnote about putting bitcoin on the moon, too.
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