Why BitMEX is betting its future relevance on a 268-year-old German bank

More than a year after its founders were hit with criminal charges that rocked the crypto world, the new management team at BitMEX is scrambling to forge a different path for the once-vaunted exchange. 

Markets veteran Alexander Höptner, who took over the reins as CEO one year ago, aims to reinstate BitMEX as a regular fixture among the top ten crypto exchanges by volume. And he knows he must do it fast.

“I think when you look at the crypto industry, we don’t have a lot of time,” he says, pointing to the rapid emergence of rival exchanges. Höptner adds though that the timeline is short, the company’s M&A strategy is “a very aggressive one.” 

A crucial step in the exchange operator’s race against the clock came on January 18, when BitMEX Group announced plans to acquire a 268-year-old German bank named Bankhaus von der Heydt for an undisclosed sum, subject to regulatory approval. The company said it expects to close the deal in the middle of this year. 

Höptner says it could prove “an extreme accelerator” of BitMEX’s plans. But what can a centuries-old German lender offer the embattled exchange? 

Started from the top, now we’re here

In October 2020, BitMEX co-founders Arthur Hayes, Ben Delo and Samuel Reed were hit with charges that they had illegally operated a crypto derivatives platform and violated anti-money laundering rules in the US. In August of the following year, the company paid $100 million to settle the charges brought by the Commodity Futures Trading Commission and Department of Treasury’s Financial Crimes Enforcement Network. 

Before that, in February 2020, BitMEX accounted for 38.8% of the crypto futures market, based on open interest across bitcoin futures (see the chart below). Today, it accounts for just 3.54%. 

Binance is now the dominant player in the market, with 27.45% of open interest across bitcoin futures concentrated on its platform, per The Block Research. 

But to Höptner’s point, in crypto, everything can change in an instant. 

Though it does not appear to have weighed on its volumes so far, Binance has come under immense regulatory pressure in multiple countries over the past year. It has subsequently wound down its derivative products in some jurisdictions, including Germany and Hong Kong. 

At the same time, newcomers are making their mark. The decentralized exchange dYdX, which boasted no market share whatsoever until September 2021, now accounts for 1.24% of open interest across bitcoin futures, according to The Block Research’s data. FTX, which has become a behemoth in the past few years, came from a very low base of around 2% of the bitcoin futures market in February 2020 to roughly 15% today.

Höptner is hoping he can orchestrate another industry shakeup that brings BitMEX back to the top. 

Banking on Germany

How does acquiring an old German bank make that shakeup any more likely to happen?

Despite the turmoil at BitMEX and the significant hit it has suffered in terms of market share, the exchange continues to facilitate around $2.3 billion in trading a day and some $38.8 billion a month, according to its website. 

Roughly 40% of that volume comes from clients based in Asia, 20-30% from those in Europe, and the rest from other countries — excluding the United States and other places where the exchange has had restrictions imposed on it. 

BitMEX has been touting a “beyond derivatives” strategy for building on that base since April last year. In a blog post at the time, Höptner wrote that the business would expand its services to include spot trading, brokerage, custody, information products and an educational hub. 

But the reality is that BitMEX isn’t straying too far from its bread and butter. “It might look like we’re turning away from derivatives, but that’s wrong,” says Höptner. 

The difference this time around is that BitMEX intends to offer these products in ways that will be well-received by regulators. That’s where Bankhaus von der Heydt comes in. 

The bank is already somewhat familiar with crypto. It began offering crypto services through a partnership with Fireblocks in October 2021.

Höptner says the acquisition “allows us to offer a lot of building blocks of the ‘beyond derivatives’ strategy,” adding that all those new products will be packaged with appropriate onboarding, know your customer (KYC) and anti-money laundering (AML) checks. 

The big question, of course, is whether regulators in Germany can be convinced to wave through the acquisition. 

BitMEX’s own recent history aside, German watchdog BaFin has endured a disastrous spell overseeing financial innovators. Wirecard and Greensill, two fintech firms that became scandals of global notoriety, both owned German banks that were subject to BaFin’s oversight.   

“I can’t comment on what BaFin is doing,” says Höptner. “It is a natural psychological human habit if something goes wrong, like with the Wirecard thing, everybody gets a little bit more edgy.”

Höptner believes, however, that Germany’s digital assets regime offers a clear set of rules to adhere to. More broadly, he feels there is the political will to embrace crypto businesses. 

“Germany is progressive when it comes to regulation of crypto,” he says. “And the new German government clearly stated that they want to be a powerhouse in blockchain and Europe.”

If that is truly what it wants, the government now faces a difficult question: Could a reinvigorated BitMEX help to fulfill those ambitions?