In a recent interview, Arthur Hayes, Co-Founder and CEO of crypto derivatives exchange BitMEX, talked about his company, and in particular, mentioned that he was looking into the idea of BitMEX issuing some kind of short-term Bitcoin bond.
The BitMEX CEO’s comments during an interview (published April 12) with cryptoasset analyst and trader Luke Martin (“@VentureCoinist” on Twitter) on the “Venture Coinist” podcast.
Perhaps, the most interesting part of this highly informative and interesting interview was when Hayes started talking about the idea of creating a future “where the highest quality exchanges and miners… issue short-term Bitcoin bonds”:
“One thing that I have started exploring, on a very small scale, is how do we generate income natively in first Bitcoin—because that’s obviously the biggest coin out there—for people who hold Bitcoin. If I hold some Bitcoin and I want to generate some income from it, it’s extremely difficult. It means I have to lend it to somebody unsecured… and default rates are quite high.
So, one of the underpinnings of the fixed income markets in traditional space is that high-quality corporates that everybody knows and trusts issue commercial paper, short-term paper, and usually U.S. dollars, for the funding needs of their company. Now, usually, they don’t need this money. It’s more that it’s operationally and financially efficient for them to borrow money instead of using their retained earnings.
That should happen in crypto as well. I want to create a future where the highest quality exchanges and miners… issue short-term Bitcoin bonds to the ecosystem. So, let’s say you want to buy some 30-day paper. Why can’t you buy a BitMEX 30-day zero-coupon bond that yields some rate of interest that reflects the market’s determination of our credit risk? Or the Coinbase, or the Kraken, or the Bitmain… that probably don’t need the money but they have a reputation to uphold. Do I want to default on the ecosystem? So, I’m more inclined to pay back this money because I want to keep the good name of BitMEX in good standing.
So, if we start to have an almost risk-free curve of interest for Bitcoin, then riskier borrowers can start to price themselves against the rock-solid companies in the ecosystem, and people can start to select. OK, I’d like to take a little bit more risk. Maybe, there is a speculative project. They’re going to build X, and they need a 100 bitcoin, and they are paying a 20% per annum yield. I am going to buy that issue.
Now, we’re really creating a credit curve for Bitcoin, and people can start natively borrowing it, and creating businesses around, in the crypto space, borrowing crypto, having no outside currency exposure. That really helps generate this ubiquitousness of the use of Bitcoin and other cryptocurrencies, and that really takes our industry forward.
So, that’s something I’m looking into now, and hopefully in the next few months I can come up with sort of a paper, if you will, or a test transaction to see if there really is interest for this, so that we can get this fixed income market going.
And obviously, from a selfish perspective of BitMEX, the fixed income markets are much larger than the FX markets… So, if we can start to trade interest rate derivatives on our native crypto credit curve, which is comprised of the best quality companies in the space, that’s really going to take our platform to the next level, and help us achieve our goal of becoming the largest exchange and the most profitable in the world.”
A few other highlights of this interview were:
- Hayes explaining why Bitcoin is so important to BitMEX: (1) it only takes BTC as collateral, which allows it “to onboard a customer within 10 minutes”; this means, it can process a deposit/withdrawal with no human intervention and without involvement of a bank; and (2) Bitcoin allows BitMEX to be more financially creative, such as being able to offer 100X perpetual swaps.
- “We’ve funded a startup… hopefully, by summer of this year, you’ll be able to use Bitcoin and purchase the S&P 500 and Nasdaq QQQ indices… and essentially, you won’t have Bitcoin-USD risk: you’ll send bitcoin; they’ll FX it into dollars, and allow you to buy a swap. And when you want to leave, you’ll sell the swap, get back dollars, and then you can get back your bitcoin, and go along your way… So, this is hopefully going to allow people in emerging markets, who don’t have access to some of the most liquid and notable indices in the world, to use their Bitcoin to access traditional equity indices.”
- BitMEX launched its perpetual swap on ETH-USD in August 2018 and “within two months, it became the most liquid ETH-USD trading instrument” and the “twist” BitMEX did with altcoins was to add the “quanto” feature.
- This “allows you to use Bitcoin as your margin currency—and this is your profit/loss currency as well—and to trade risk that doesn’t have anything to do with Bitcoin.”
- “From a speculator’s point of view, this is great. I have Bitcoin and I want to speculate on Ether vs. USD price, and I want to get my money back in Bitcoin.”
- “We do want to launch this on other altcoins vs. U.S. dollar.”
- “We do like this quanto perpetual swap structure, and to my knowledge, we are the only platform that offers this structure.”
- “We hope to possibly have our own options platform in maybe in 12-18 months.”
- BitMEX has no plans to launch its own exchange token (unlike competitors such as Binance): “It’s complicated in terms of what is the legality around that token: is it a security?… We have more than enough issues to deal with… than creating a whole set of issues because we issued our own token for money that we don’t need and new problems that we don’t need to have.”
The full video of Luke Martin’s Interview with Arthur Hayes is available on the “Venture Coinist” YouTube channel.