WuBlockchain’s latest podcast episode looks back at BitMEX through a conversation with hedge fund manager Kuange, who traced the exchange’s path from early market leader to eventual shutdown. The discussion focused on how BitMEX built the mechanics of perpetual swaps, what happened during the March 12, 2020 crash, why inverse contracts amplified liquidation pressure, and how regulation, product inertia, and weaker user operations pushed traders elsewhere.
Kuange said BitMEX’s place in crypto history rests on one core achievement: it turned perpetual swaps, funding rates, mark prices, insurance funds, and auto-deleveraging, or ADL, into a functioning market structure. In his view, that framework later became standard across the industry and helped make BitMEX a major venue for price discovery during the bear market.
From the ICO boom to the BitMEX era
Kuange said he entered the crypto industry in November 2017, when the ICO boom was still in full swing. New tokens could be bought and then listed quickly, and the wealth effect across the market was strong. He came from a financial engineering background, with doctoral research covering options, swaps, and other complex derivatives and hedging methods, and later worked with exchanges and project teams on risk control and derivatives design.
At the time, he said, the biggest opportunity in the market was still ICO trading, and BitMEX had not yet become the main focus for many participants. That changed around April and May 2018, when crypto entered a bear market. Pure long exposure stopped working, traders started looking for shorting tools, and negative incidents at some platforms weakened user trust. Against that backdrop, BitMEX began gaining traction among professional Chinese traders.
He recalled that Bitcoin fell from nearly $20,000 to the $3,000 to $4,000 range, and shorting became one of the few ways to make money. BitMEX stood out sharply. Order book depth often reached several million dollars, while many other platforms only had depth in the thousands or tens of thousands of dollars. In his telling, BitMEX was clearly ahead in both liquidity and product experience. More mature competitors only started to appear toward the end of 2019.
How perpetual swaps reshaped crypto derivatives
Kuange argued that BitMEX’s main product innovation was solving early crypto market problems around shorting, leverage efficiency, and fragmented liquidity in dated futures.
Going long was simple because traders could buy spot. Shorting was harder. Traders often had to borrow Bitcoin, sell it, then buy it back later to return the borrowed coins. Leveraged trading also came with borrowing costs, and leverage multiples were usually limited. When spot markets lacked depth, slippage and execution costs became even more painful.
The alternative was delivery futures, but liquidity was split across different maturities. Traders with long-term positions had to close expiring contracts and reopen in the next tenor. For large users such as miners, who needed ongoing hedges, that created visible trading costs.
Perpetual swaps removed expiry and concentrated liquidity in a single market. Funding rates then pulled contract prices back toward spot so they would not drift away for long periods. BitMEX also brought in mark prices, a liquidation engine, an insurance fund, and ADL. Kuange said these elements are now basic market infrastructure, but at the time they were difficult to design and build.
He added that the idea of a perpetual swap was not invented from scratch in crypto. The term already existed in traditional finance, but it never became a mainstream product there. What BitMEX did was adapt the idea to crypto and assemble a system that could actually run at scale. In his view, that was its most important contribution.
Why perpetual contracts beat dated futures
Kuange said delivery futures can trade above or below spot for long stretches and only converge at expiry. That means investors can be right on direction and still lose money because the basis moves against them. Perpetual swaps keep adjusting through funding, so the pricing experience is much more direct.
No expiry also means users do not have to roll positions over and over. That made the instrument particularly useful for long-term hedging. With traders concentrated in one contract, market depth improved as well. He noted that BitMEX also used smaller tick increments and similar design details to help concentrate orders further.
Is the 0.01% funding rate every eight hours outdated?
Many exchanges still use a base funding rate of 0.01% every eight hours, a parameter tied to BitMEX’s early estimate of US dollar and Bitcoin borrowing costs. Kuange said that criticism is fair. The parameter may have reflected funding costs at the time, but the rate environment has changed and the market has largely moved to USDT-margined products, so the setting may no longer be appropriate.
He said BitMEX later discussed the issue in its own official writing. In his view, when other platforms copied perpetual swaps, they copied both the sensible settings and the less sensible ones.
That does not mean exchanges made no changes. Some markets shortened funding intervals to four hours or one hour, and funding caps and floors for smaller tokens also vary. Still, he said the limits of perpetual swaps are now showing up most clearly in small-cap token markets.
Some low-float tokens can be squeezed higher for extended periods. Shorts then face two pressures at once: rising prices and very high hourly funding payments. Even if the token eventually falls, short sellers may already be forced out by funding costs or liquidation.
Kuange said that outcome runs against the original purpose of derivatives as tools for price discovery and hedging. He gave the example of traders shorting ahead of future token unlocks as a hedge, only to be liquidated by extreme funding and manipulation before the thesis can play out. Delivery futures also carry risk, he said, but without continuous funding, manipulators must keep pushing the market up to force shorts out.
He added that exchanges often rely on account-link analysis and IP detection to control risk, but it is hard to draw a clean line between legitimate trading and market manipulation. The deeper issue, in his words, is that not every illiquid token is suitable for derivatives. He saw BitMEX’s early restraint, offering contracts only on a small group of major assets, as a sign of discipline.
Trading on BitMEX and position management
Kuange said his team mostly traded Bitcoin on BitMEX as a hedge against other positions rather than as a one-way directional bet. Leverage was usually kept at 3x to 5x, with a maximum below 10x, while margin levels and risk exposure were watched continuously.
At one point, he said, their hedge position made it onto BitMEX’s profit leaderboard. That did not mean the overall portfolio was making money, because there were offsetting losses on the other side. He described the leaderboard more as a gamified feature to draw in traders and stir competitive behavior.
Did the March 12 outage stop a deeper sell-off?
On the March 12, 2020 crash, Kuange said his team traded through the API. Under normal conditions, he described BitMEX’s servers and interfaces as strong. But it was also the most active market at the time, and the load during extreme volatility was enormous.
Objectively, he said, the outage did interrupt continuous liquidations. Bitcoin stopped falling near $3,800. If the system had kept running, the price might have fallen further. Whether the outage was intentional, however, is something outsiders cannot prove. Only those directly involved would know.
He also linked the waterfall decline on March 12 to the structure of BitMEX’s dominant inverse contracts. Because BitMEX was a key venue for price discovery, other platforms tended to follow its moves, and inverse contracts were especially punishing for longs during a sell-off.
Why inverse contracts intensified liquidation risk
Kuange said inverse contracts used Bitcoin as collateral. When Bitcoin fell, long traders were hit three ways at once: the position itself lost value, the collateral also fell in value, and the effective loss ratio widened further because the collateral was shrinking. That nonlinear structure, he said, made cascading liquidations much easier to trigger.
USDT-margined linear contracts do not create the same three-layer pressure. As prices drop, the same dollar amount can absorb more Bitcoin, which weakens that feedback loop. In his account, the industry’s move toward USDT margin later reduced this type of downside reflex.
Asked whether his team lost money during that period, Kuange said the overall book was hedged long and short. In the sharp sell-off, the losing side was liquidated, which effectively acted as a forced stop. The winning side kept making money, so the portfolio as a whole still ended up profitable. But ADL later cut back the profitable position automatically, sharply reducing realized gains.
He stressed that this was not the result of predicting the crash in advance. It was what the hedge structure produced in extreme conditions. For him, March 12 showed that even market-neutral traders still face risks tied to liquidation rules, system capacity, and ADL.
Why BitMEX lost market share
Kuange called regulation a very important factor in BitMEX’s decline. At the time, the exchange did not require KYC, but it strictly limited access from certain regions through IP controls. Once an account was flagged as coming from a restricted area, it could be pushed into reduce-only and withdrawal-only status almost immediately, with little room to appeal.
For professional traders, he said, that meant having to close positions, move capital, and rebuild exposure elsewhere, while paying trading fees, slippage, and market impact in the process. By the second half of 2019, he said, continuing to use BitMEX had already become difficult, and his team had to look for alternatives.
Operations were another weak point. In BitMEX’s earlier period, withdrawals were processed only once a day, making it inconvenient to move margin on short notice. The platform also lacked customer service, user campaigns, and tiered fees. He described it as more of a specialized tool than a full-service exchange.
At the same time, perpetual swap products became increasingly similar across platforms. Once rivals could offer roughly the same product with lower fees and more services, liquidity began to move. Trading venues have network effects, he said. The more users gather in one place, the deeper the market becomes, which then attracts even more users.
Slow to pivot to USDT margin
Kuange also saw product iteration as a major reason BitMEX fell behind. As the market shifted toward USDT-margined contracts, BitMEX stuck with BTC-margined inverse products for too long. Many retail users did not hold Bitcoin, so they first had to convert and transfer funds before using inverse contracts. Bitcoin network costs and transfer speed also hurt the experience.
He did not dismiss the early logic behind inverse contracts. In that period, USDT’s credibility and infrastructure were still less mature, and using dollars or dollar equivalents directly as collateral might have created more immediate regulatory risk. In his view, BitMEX was not incapable of building linear contracts. It was dealing with the limits of its era.
But once stablecoins matured and market preferences changed, sticking with inverse contracts turned into a burden. BitMEX did not complete the transition in time, and its product advantage was overtaken by later entrants.
How Bybit took in the “BitMEX refugees”
Kuange said many users affected by regional restrictions later referred to themselves as “BitMEX refugees.” Bybit arrived at the right moment. Its early products and interfaces closely mirrored BitMEX, which made migration easy for professional traders.
He said Bybit had fewer users in its early stage, so its system was less likely to choke under stress. Liquidity was also strong and, at one point, clearly better than that of several other major platforms. The team had experience operating foreign exchange platforms and put more weight on broker networks, customer service, and community operations. Fees could also be adjusted depending on the user.
More importantly, he said, Bybit moved faster. It initially copied even BitMEX’s scheduled withdrawal mechanism, then changed it quickly after seeing the user experience problems. It later expanded into USDT-margined products, spot trading, wealth management products, and a broader set of operating activities, gradually turning from a single derivatives venue into a full-function exchange.
In Kuange’s summary, exchanges ultimately moved toward a “super app” model, combining spot, derivatives, wealth products, and other services under one roof. BitMEX held onto its identity as a professional tool, while newer rivals won users with broader products and operations.
Why no buyer emerged for BitMEX
BitMEX has said it sought a sale but did not find a buyer. Kuange said exchange acquisitions are typically judged on users, liquidity, licenses, and technical barriers. By the time the sale was discussed, BitMEX had already lost a large share of its users and volume, and perpetual swaps had long since been copied across the market. The original moat was largely gone.
He said the exchange still had brand recognition and historical status, but crypto traders are not deeply loyal to any single venue. If another platform offers lower fees, higher returns, and a similar degree of trust, funds can move quickly.
He also noted that the founding team had already stepped back from day-to-day operations, while the platform still carried historical regulatory baggage. For any buyer, it would be difficult to know how many users and how much revenue could still be kept after an acquisition. Another possibility, he said, is that sellers valued BitMEX for its history while buyers looked only at future cash flow, leaving little room for agreement on price.
How Kuange rates BitMEX’s place in crypto history
Kuange said his overall view of BitMEX is positive from a financial engineering standpoint. He credited the exchange with real product innovation and with bearing the cost of educating the market and testing mechanisms early on. Many pieces of infrastructure the industry uses today, he said, were built on the path BitMEX opened.
He also stressed that perpetual swaps themselves are neutral tools. High leverage does raise liquidation risk, and exchanges using 100x leverage to attract users deserves scrutiny. But even without perpetuals, leveraged spot trading and delivery futures can still produce large losses.
The timing of BitMEX’s closure surprised him somewhat, but its long decline did not. Once exchanges entered a “super app” competition, smaller venues found it hard to come back through a single product innovation alone, especially when major platforms could copy leading features quickly. In his words, BitMEX had already lost users, liquidity, and differentiation, leaving little room for a new growth story.
Even so, he said the period from 2018 to 2020 can still be called the “BitMEX era.” Its impact on crypto market structure and on many people who worked in the industry should not be overlooked because of its later decline.
The golden age of offshore regulatory arbitrage is over
Looking ahead, Kuange said crypto used to be especially fertile ground for financial innovation. In traditional finance, launching derivatives requires a complicated compliance process, and regulators became more cautious about financial engineering after the 2008 financial crisis. In crypto, by contrast, products could be launched quickly as long as they worked and found users.
He also pointed to another structural advantage: crypto trades around the clock and does not shut for weekends or long holidays, which helps derivatives function without the kind of opening gaps seen in traditional markets.
But the regulatory environment has changed, he said. Large exchanges are paying much more attention to licensing in different jurisdictions, and moving toward compliance has become the direction of travel. The period when offshore exchanges could thrive on differences in geography and rules is fading. The market, in his view, will become more compliant and move away from the earlier “Wild West” style of innovation.
That may reduce some risks, but it also means new products will have to develop under tighter constraints. Innovation will continue, he said, though no longer with the same freedom to experiment that the industry once had.
Can BitMEX’s innovation stand beside Uniswap?
Asked where BitMEX belongs in crypto history, Kuange said it represents a relatively rare case of product-level innovation. Other exchanges introduced platform tokens, IEOs, fee discounts, and public-chain ecosystems, but he saw those mainly as operational or business-model innovations. BitMEX, by contrast, turned a complex derivatives structure into infrastructure used at scale.
In his view, that kind of contribution can be discussed alongside Uniswap. Both changed the industry’s underlying structure, though in different ways. BitMEX later lost market share, he said, but that does not erase what it contributed when it was leading.
WuBlockchain noted in the original piece that the guest’s views do not represent WuBlockchain’s own position and do not constitute investment advice. It also said the audio transcript was produced by AI and may contain errors. The full podcast is available on Xiaoyuzhou.