After BitMEX Meltdown, Should Shorting Be Banned on Crypto Exchanges?

After BitMEX Meltdown, Should Shorting Be Banned on Crypto Exchanges?

Bitcoin’s (BTC) rapid 50% price drop in the wake of Coronavirus concerns aroused chatter around banning the ability for traders to assume short positions in cryptocurrency markets. Question is, would that be the right move?

Flash crash raises spectre of shorting bans

On March 12 Bitcoin dropped to prices not seen since April 2019, shedding half its value as fear gripped markets worldwide. The massive sell-off was instrumental in the carnage in which all cryptocurrencies except stablecoins suffered.

Long positions worth around $1 billion were squeezed on Black Thursday, raising serious concerns about the long-term viability of leveraged and derivative trading in crypto markets. After the crash, Huobi’s derivatives trading platform, Huobi DM, introduced a partial liquidation feature aimed at providing a circuit breaker to limit trading losses when the market corrects sharply.

Furthermore, a significant percentage of crypto trading volume occurs on BitMEX, OKEx, Binance Futures, and FTX, suggesting leveraged trading is having a disproportionate impact on spot prices.

Last October, analytics data that crypto futures trading represented about 50% of the volume of spot trading. According to analytics firm Skew, before the dramatic slump, BTC futures trading had rolling open aggregate interest volumes around $5 billion. Read More...