After Bitcoin price shoot up around $900, from $4,200 to $5,100 on Tuesday, BitMEX clients who were holding speculative and leveraged short positions with its XBTU19 futures contract reported that a lot of their positions were auto-deleveraged. However, BitMEX exchange swiftly said in a recent press release that the number of affected positions was low and only a fraction of their clients’ positions were affected due to the volatility.
“Less than 200 positions were auto-deleveraged due to the sharp price movements of the underlying mark price on XBTU19 and ETHM19,” said BitMEX.
Crypto Community Members Express Their Concerns
Prior to the BitMEX press release addressing the concerns regarding auto-deleveraging and forced closure of short positions, clients and industry commentators published several Tweets expressing their frustration regarding the recent volatility in the crypto market, and how their positions were taken out due to the sharp upswing of BTC/USD price earlier today.
Edward Morra initiated a thread stating that “around $500 worth of short positions on BitMEX were liquidated.”, stated Edward Morra. PAU said “approx. 50 mins, $500M got liquidated (rekt) due to shorting BTC. Those trades went to 0 because those are leveraged contracts.”
Other community members raised their concerns asking why the insurance fund was not used?
In response to such allegation, BitMEX clarified by saying its Insurance Fund is allocated individually to each contract according to how many liquidations contribute to that specific contract. Hence, if contracts expire, BitMEX has a process to roll over the Insurance Fund allocated to these contracts into the next front month contract.
However, with the recent expiry on the 29th March 2019, this internal process failed and front-month contracts did not receive their reallocation. Consequently, the funds remained unallocated and a handful of users were auto-deleveraged upon large liquidations within these affected contracts.
BitMEX Says It Will Compensate Clients
While BitMEX claimed that only less than 200 positions were auto-deleveraged, it doesn’t mention exactly how much those positions were worth.
However, BitMEX was clear that it will reach out to each affected client and compensate them based on “the maximum potential profit that they would have made over the time-frame of these auto-deleveraging events.”
While the compensation factors will not be made public, we are sure that there will be plenty of coverage on the issue by affected users and we will continue to provide coverage on how things pan out in the next few days.
Leveraged trading futures are always highly risky endeavors and the BitMEX fiasco underlined how system failure at the brokerage during extremely volatile events that can affect positions regardless of how well funded the account is.
However, being a reputable business, BitMEX did the right thing by quickly explaining why the situation developed and took immediate action to compensate affected users, which will remain as an example of how to defuse a public outcry.