BitMEX, a digital currencies exchange that offers 100x futures on bitcoin, ethereum and other currencies, today announced they are to launch two new prediction markets related to the bitcoin scalability debate.
The first one is a segwit prediction future on “whether or not BIP141, also known as Segregated Witness, will be activated on the longest Bitcoin chain by the expiry date (31 December 2017, 12:00 UTC).”
The second one is BLOCKS, which is “a prediction future on whether a block larger than 1MB will be mined on the longest Bitcoin chain.” This, of course, precludes segwit, defining bigger blocks as an increase to the maxblocksize parameter. Arthur Hayes, BitMEX’s co-founder, told CCN:
We are launching these markets because we are committed to providing price discovery on issues that are important to the Bitcoin trading community. We do not have a view on whether SegWit should or should not be activated. We do not have a view on whether the block size should or should not be increased. We are agnostic.
The prediction market is not necessarily indicative of the level of support for either segwit or bigger blocks as traders are betting on activation. It may, therefore, assist in suggesting the likelihood of activation of either, with traders who do not necessarily support segwit or bigger blocks nonetheless betting if they think they have information that the wider market does not have.
On this point, Hayes said that they have “attempted to craft the prediction markets to be as objective as possible,” but a good objective measure of support levels remains lacking despite two years of debate.
Nonetheless, many may see these two new futures as more impartial and fair than what BitFinex offered recently as the terms appear to be what one might expect on a prima facie reading. Potentially offering the market extra information on developments in the scalability debate.
However, the exchange is unlicensed, but Hayes says “we abide by all applicable regulations in our home jurisdiction of the Seychelles,” a tiny former British colony in the African continent.
Liquidity, of course, is expected to be short to begin with, which may lead to a considerable spread. On that point, Hayes says:
“Regarding the spread and liquidity, these are new trading instruments. In the beginning, they will be illiquid, but as people get more comfortable with trading prediction futures contracts on BitMEX, the liquidty will grow and the spreads will tighten.”
BitMEX’s spread in general and on bitcoin futures appears to be considerable, however Hayes says “our Bitcoin/USD swap is one of the most if not the most liquid Bitcoin/USD trading products on the market.”
Asked whether they charge traders through spreads like traditional Foreign Exchange platforms, Hayes said “no we charge per transaction. We don’t trade against our customers.”
Of course, for the market to have any confidence that is indeed the case independent audits would be very useful as well as licensing. On the latter point, however, BitMEX might be excused because CFTC continues to make it very difficult to provide margins or futures in a fully regulated manner.
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