Zero to $800b: Arthur Hayes on Bitmex’s rocky start

Arthur Hayes. Photo credit: Bitmex

In the summer of 2013, Arthur Hayes lost his job at Citibank. Instead of getting another gig in banking, he started trading Bitcoin full-time.

That was an even gutsier call in 2013 than it would be today. Although by summer, Bitcoin had seen roughly 10-fold growth over the year, it was still hovering around (and frequently dipping below) US$100 per coin – a price it had never gotten far above – and it was still generally unknown.m,

Still, those closest to Hayes were supportive of his decision. “My family and friends always knew I wanted to be an entrepreneur not a career banker,” he said. “They also saw how un-engaged and bored I was while I was trading at various investment banks.”

That entrepreneurial itch got to Hayes, 33, after about six months of full-time trading – during which time Bitcoin’s price rocketed beyond US$900 and began to get mainstream media attention. He had been trading Bitcoin futures contracts on a platform called ICBIT, but wasn’t satisfied with the speed at which it was developing.

“[I] thought given my background as a derivatives trader, that I could build something better,” he told Tech in Asia. “Reaching out through my network, I located my two co-founders, Ben Delo and Samuel Reed. I pitched them the idea to start a Bitcoin derivatives-only trading platform, and we started building Bitmex in January of 2014.”

Leverage

Bitmex is a Seychelles-based crypto-coin trading platform. But Hayes himself is based in Hong Kong, and a lot of the company’s operations are grounded there.

In essence, Bitmex is peer-to-peer Bitcoin derivatives trading for expert traders, matching buyers and sellers of derivatives contracts – like futures and swaps – and then acting as a neutral judge of winners and losers based on the terms of the trade. Its biggest unique selling point is that it offers traders the chance to trade with up to 100x leverage – meaning they can make big bets with very small amounts of collateral.

Hayes is often on CNBC. / Screenshot from Ethereum World News

That level of risk might sound terrifying, but Bitmex offers the leverage and instruments professional traders are used to, and that’s no accident.

“I learned a lot while I worked at Deutsche Bank and Citibank,” the CEO said. “The most profitable products a bank offers are derivatives. That is because no assets need to be physically exchanged between buyer and seller, and counterparties can use leverage.”

Not chickening out

But Bitmex hasn’t always offered those kinds of high-risk trades – and in the early days it struggled to gain traction.

That’s not unusual for new trading platforms, which tend to face a chicken-and-egg problem: users want liquidity, but liquidity only comes when you have a lot of people onboard. In other words, to have a lot of trades, you need a lot of users, but to get a lot of users, you need to already have a lot of trades. For a while, Bitmex struggled with this. “Throughout most of 2015, the volumes on Bitmex were pathetic,” Hayes said. “Some days we matched zero trades.”