Conversation

SBF
@SBF_FTX
2) Evidence: (a) BitMEX went down and then crypto recovered. (b) their liquidation engine was lethargic
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SBF
@SBF_FTX
3) There's a critical ratio: Liquidations triggered per dollar move / liquidity per dollar. Call this R.
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SBF
@SBF_FTX
4) R was huge today. There were endless liquidations, and the BitMEX orderbook was basically nonexistent.
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SBF
@SBF_FTX
5) If R gets above 1, we're all fucked. Why is this? Because there's a $10m liq, which moves prices down X, which is enough to trigger... more than $10m liq. So there's a positive feedback loop. And BitMEX liquidates the orderbook...... down to 0.
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SBF
@SBF_FTX
6) Well, this looked like it was happening today. There was $1m per 25bps or so on the orderbook, and constant $10m liqs. I think R was, in fact, > 1.
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SBF
@SBF_FTX
10) But they didn't work it aggressively, they kept on hoping it would just go away. That's NOT how a liquidation engine works. A liquidation engine's primary job is to save the insurance fund and other customers, even if that has significant market impact.
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SBF
@SBF_FTX
11) And then, when things were teetering on the edge, with quarterly premiums at -15%....... BitMEX went down for maintenance.
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SBF
@SBF_FTX
12) BTC rallied without the gigantic sell wall of the BitMEX liq. And even more than that--BTC rallied, so fewer people *had* to be liquidated..... Creating a self-fulfilling prophecy. If we could will BTC up above $5k, maybe then it would no longer *need* to go down.
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SBF
@SBF_FTX
13) So why did BitMEX go down for maintenance? And why was their liq engine so aggressiveness today? Was it organic?
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SBF
@SBF_FTX
14) Or did BitMEX realize that they had a choice? They could liquidate BTC down to 0..... Or they could go down for an hour, let BTC rally, release some of the liq pressure, and hopefully catch a positive feedback loop removing the need to ever liq the BTC.
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SBF
@SBF_FTX
16) Anyway probably this is wrong, and probably it really was just maintenance. But maybe not. Maybe BitMEX realized the position it was in: an insane amount of leveraged positions, no liquidity, and no prime brokers to allow arbitrage to save us.
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SBF
@SBF_FTX
17) (By which I mean--people couldn't buy on BitMEX unless they had BTC physically there.... And then they'd risk themselves getting liquidated in the cascade, with none of their short hedges offsetting their risk engine, and a congested blockchain preventing topping up.)
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