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BitMEX freezes as XBTUSD crashes 10% below Bitcoin spot price [UPDATED]

BitMEX freezes as XBTUSD crashes 10% below Bitcoin spot price [UPDATED]

The price of Bitcoin dived $400 below the BTC spot price on BitMEX’s Bitcoin perpetual swap contract as the platform reportedly halted trading on account of “system instability.”

Traders widely reported experiencing a system crash on BitMEX between 02:16 and 03:00 UTC Friday morning, as XBTUSD crashed to $3,600, $400 below the Bitcoin spot price.

bitcoin bitmex

The huge divergence came following a ferocious market-wide sell-off that saw Bitcoin shed nearly 40 percent against the dollar, and the BitMEX funding rate crater to its lowest level in years. 

At 5am UTC, BitMEX released a statement on Twitter describing the outage as a “hardware issue” causing “requests to be delayed.”

A bad day to be on BitMEX

The sudden drop in funding comes after one of the largest bloodbaths ever seen on the Seychelles-based derivatives exchange, with Thursday seeing nearly $1.4 billion worth of long contracts get liquidated, and the BitMEX insurance fund losing 1627 BTC, its biggest intraday drop in two years.  After Friday’s early-morning flash-crash, the fund will thinkably post a larger loss (data is yet to be released for Friday). 

BitMEX XBTUSD liquidations
BitMEX XBTUSD liquidations (Source: Datamish)

As Bitcoin hit $4,000 on the spot market BitMEX’s XBTUSD two-hour funding rate saw a drop to a massively low -0.3750 percent, and the contract price wicked down to $3,600. 

Jonathan Leong, CEO of crypto derivatives exchange BTSE told CryptoSlate:

“The crypto markets are affected right now because BTC has been trading like its positively correlated with the equities market. If you compare the traditional markets to the BTC market cap of $140 billion it is difficult to consider Bitcoin as a safe haven at this time”

The funding rate is a mechanism unique to perpetual futures offerings like BitMEX’s Bitcoin contract designed to encourage the futures price to stay near spot price. In periods where the funding rate is skewed heavily negative, short contract-holders must pay larger fees to long-holders. Bouts of extreme volatility — like at present — can send the futures price careering away from the index as the funding rate swings in one direction or the other.

BitMEX Bitcoin weekly funding rate
BitMEX weekly funding rate – Skew

According to crypto analyst Alex Kruger, BitMEX’s -0.3750 daily funding rate would work out to short holders paying 400 percent to longs annually.

Ross Middleton, CFO at decentralized exchange DeversiFi spoke to CryptoSlate about the reasons for the drop, stating:

There is a general ‘risk-off’ approach to all risk assets, including crypto. Bitcoin will show its safe-haven credentials over a longer time horizon once this move has bottomed out, or at least prove uncorrelated to other asset classes.”

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