BitMEX trading depth falls heavily along with bitcoin price during brutal November

The drop in the price of Bitcoin during November appears to have devastated traders on BitMEX, a story told by the massive drop-off in liquidity on its futures market. 

According to data from Bitcoinity, the liquidity of the BitMEX futures market has all but dropped off a cliff as the price of Bitcoin descended during November. The chart, bought to light by hedge fund manager Su Zhu in a tweet, shows that as the price of BTC toppled in the second half of November, the value of BitMEX Perpetual Swaps bids and asks (specifically, the amount of investor money placed alongside instructions to buy or sell the futures at less than 10% either side of the spot price) fell by whopping $531m in just a few days.

Looking at the chart above, which tracks six months of trading activity on BitMEX XBTUSD Perpetual Swaps market – an asset that allows traders to take both Long and Short positions on the headline cryptocurrency – shows the precipitous drop off in activity as the price of Bitcoin plummets around November 11th.

Having peaked out at the start of the month – with standing Bids (requests to buy) on the order books at $340m and Asks (sells) at $278m, by the time Bitcoin’s price dropped down to below the $4,000-mark towards $3,500, that same order book had been stripped down to $46m and $43m respectively. As the BitMEX Perpetual Swaps are a zero sum game, whereby for every winner there is a loser (and visa versa, or course), this total fall is not a representation of losses by one side or another, it is testament to the volatile nature of the market at the time – and the damage that the rapid price fluctuations during the decline did to traders. It shows, to use the common parlance, a lot of people getting ‘Rekt’ – largely by over optimistically holding Long positions for too long expecting the BTC price to recover, and watching all their money siphoned away as a result.

Sites that track liquidations on the exchange tell the tale of how took its toll largely on traders expecting BTC’s price to recover. Indeed, we reported at the time that BitMEX liquidations – where traders buying the Swaps with leverage accumulate losses in excess of the maintenance margins that underpin the money they’ve borrowed – had exploded to in excess of $1.3bn worth of contracts in the week after the first falls, with the majority of those being Longs.

Today, looking at data from Datamish, BitMEX has liquidated more than $3bn-worth of trades since that November 11th, with nearly $2.5bn of those being Longs vs. $700m+ in shorts. It’s not surprise then, that many of those traders are unwilling or unable to re-enter the market while the Bears continue to maul crypto across the board. Once bitten, twice shy indeed.

According to the charts, recent days seem to have seen the price of Bitcoin attract traders back into the ring, and order book depth appears to have returned somewhat with them. Total orders within that 10% range currently stand at around $220, but another patch of high-volume volatility – as we saw in November – could easily wipe out that diminished interest in very little time, and leave an already dazed BitMEX clientele pretty much out for the count as we ring the bell on 2018.