SBF+ Your Authors @SBF_Alameda CEO of @FTX_Official and Alameda Research. ftx.com/. Not investment advice. FTX Services and FTT not available in the United States or prohibited jurisdictions. Mar. 13, 2020 2 min read + Your Authors

1) Insane theory of the day: there was no BitMEX hardware issue.

2) Evidence: (a) BitMEX went down and then crypto recovered. (b) their liquidation engine was lethargic

3) There's a critical ratio: Liquidations triggered per dollar move / liquidity per dollar. Call this R.

4) R was huge today. There were endless liquidations, and the BitMEX orderbook was basically nonexistent.

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.

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.

7) What does that mean? It means BTC might go to 0. But it didn't. Why not?

8) Well, for one thing, BitMEX stopped moving down their liqs, even if they weren't filled. They just sat there......... Hoping. Hoping that someone would lift it. But no one did.

9) Things kept grinding down as they sloooooowly lowered their liq offer. All the way down to $3.7k.

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.

11) And then, when things were teetering on the edge, with quarterly premiums at -15%.......

BitMEX went down for maintenance.

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.

13) So why did BitMEX go down for maintenance? And why was their liq engine so aggressiveness today? Was it organic?

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.

15) Note that Deribit was playing a similar role, and went down at the same time.

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.

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.)

18) It's a pretty out there theory. But TBH I think I might believe it.


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