BitMEX, the bitcoin futures exchange that has leased Hong Kong’s most expensive office in Cheung Kong Center for US$600,000 a month, has been shutting down client trading accounts in the US and the Canadian province of Quebec, as global regulators intensify their crack down on unlicensed cryptocurrency trading platforms. The development comes at the same time as the Hong Kong-based company notifying users in North Korea, Iran, Syria, Cuba, Sudan and Sevastopol in the Crimea since the fourth quarter of 2018 against holding positions or trading on BitMEX, as these are restricted jurisdictions. According to the company’s website, overall trading volume on the exchange in the past one year stood at US$965 billion. US$600,000 monthly office rent at Cheung Kong Center is a breeze for digital currency exchange BitMEX BitMEX’s move to bar Quebec traders comes after the province’s financial regulator, the Autorité des marchés financiers (AMF), sent a letter to the exchange in early 2018 asking it to close all accounts linked to Quebecois, saying the exchange was not authorised to provide trading services. “BitMEX is not registered with the AMF and is therefore not authorised to have activities in the province of Quebec,” AMF’s director of media relations told the Post. “We informed this company that its activities were illegal.” The AMF official added that all accounts linked to customers in Quebec were immediately closed. The US Securities and Exchange Commission (SEC) declined to comment on BitMEX. While US-based users cannot access the trading platform through an internet protocol (IP) address based in the US, traders have boasted of their ability to access the trading platform through virtual private networks, or VPNs, to disguise their locations. “BitMEX has banned all US traders since 2015, and has been proactively closing accounts since guidance was obtained by US regulators, in particular the Commodities and Futures Trading Commission (CFTC),” said Joe Coufal, whose firm Wachsman represents the cryptocurrency exchange, in an emailed statement. “BitMEX has always retained the right to close any accounts and to liquidate any open positions were trading participants has given false representations as to their location or place of residence.” While the reasons for BitMEX to cut its US business exposure are unclear, it comes amid increasing enforcement actions from the SEC on digital token trading platforms and intermediaries dealing with bitcoin. In November, the SEC imposed a fine of US$388,000 on Zachary Coburn, the founder of EtherDelta, for operating an unregistered national securities exchange. The SEC said in a separate statement the same month that a platform that offers trading in digital asset securities and operates as an “exchange”, as defined by the federal securities laws, must register with it as a national securities exchange or be exempt from registration. Similarly in June, both the SEC and the CFTC pressed charges against 1Broker, a Marshall Islands registered company, for allegedly violating federal securities laws by soliciting US investors to buy and sell securities-based swaps funded with bitcoin, without registering itself as a securities-based swap dealer, or trading them on a registered exchange. The SEC’s charges also targeted 1Broker’s Austria-based chief executive Patrick Brunner. Sources close to the company told the Post that while Asia accounted for the bulk of BitMEX’s revenue, US was its other major market where the trading platform had gained traction in recent years. After bitcoin fell by as much as 79 per cent from its peak of near US$20,000 in December 2017, some traders switched to trading bitcoin futures contracts to weather a cryptocurrency market downturn that dominated most of 2018. In BitMEX’s case, one of its most popular products is its perpetual bitcoin/US dollar contract, which offers 100 times leverage and has no expiry date. This means traders can make bigger bets with smaller capital and hold the positions for a longer period. Meanwhile, its “upside profit” and “downside profit” contracts also allow traders to make directional bets on bitcoin and other cryptocurrencies. Until BitMEX’s recent move to shut down US accounts, US users accounted for around one-seventh of the company’s total user base, according to several sources close to the company who spoke on condition of anonymity. BitMEX, one of the world’s biggest bitcoin platforms, hires former Hong Kong markets watchdog to oversee operations While there is no way to determine the impact of the closure of US accounts on BitMEX’s trading volume, the exchange’s move to close these accounts coincides with the lower trading volume over the past month. To be sure, the exchange attributed the lower transactions to a number of factors, including “a decrease in the price of bitcoin and market capitalisation, a decrease in cryptocurrency volatility and a drop in trading volume across the entire crypto-trading community,” Coufal said. According to data on BitMEX’s website as of January 11, trading volume over the last 30-day period stood at US$58.41 billion. This pales in comparison to July 2018 – when the company tweeted that a record 1 million bitcoin worth over US$8 billion were traded over a 24-hour period. Compared to the 30-day trading volume of at US$120.2 billion recorded in the first week of August, according to online media reports, the January 2019 volume has dropped by as much as 50 per cent. Meanwhile in Hong Kong, the prospects for the Seychelles registered BitMEX coming under the securities regulator’s purview remains uncertain. In November, Hong Kong’s Securities and Futures Commission introduced a “regulatory sandbox” for operators of virtual asset trading platforms that wished to get themselves licensed to enter. In the current framework, the SFC has made it clear that its future licensing regime, if it decides to establish one after the conclusion of the “sandbox”, will prohibit licensed operators from offering futures trading contracts, derivatives and leverage to clients.