Earlier this month it was reported that OKEx exchange’s top trader had accumulated a $460 million long position on BTCUSD quarterly futures before getting liquidated. However, the liquidation did not get filled in the market which means there’s a $460 million overhang in the weekly settlement. This led to a $9 million clawback.
OKEx issued a statement saying that the risk management team contacted the client “immediately.” Yet, exchange risk management needs to be preventative, not reactive. While the trade is easy to fix, it highlights an issue with the crypto community. Risk Management cannot be ignored.
This is exactly what CME and CBOE were hoping for when they launched Bitcoin future contracts markets in 2017. Both of these Chicago based Futures Exchanges are diligent and experienced. Past CME product development staff, are already singing praises. Though Bitcoin futures are still in the early stages, CME or CBOE will likely not make such basic errors.
CBOE’s VanEck/SolidX proposal has already generated serious buzz among investors. In particular, because it’s settled in actual bitcoin. But, now after OKEx’s flop, the spotlight is on CME/CBOE again.
The timing of the OKEx clawback is particularly beneficial to CME and CBOE as the SEC is warming to cryptocurrency. In particular, SEC Commissioner, Hester Peirce is pro-Bitcoin ETF and is one of four commissions responsible for the fate of the Bitcoin ETF.
Notably, Peirce published her dissent to the SEC’s most recent rejection. According to Peirce, the SEC went beyond its jurisdiction. She added that the commission has “no reason” not to go ahead with the Bitcoin ETF.
“By [looking at the underlying asset Bitcoin], they went beyond what the statute allows us to do. We should have focused on the market where the exchange-traded product would trade as opposed to focusing on the underlying Bitcoin markets.”
Clearer regulations and reduced volatility are good. It increases the likelihood of mainstream investment. If there is one thing we can learn from the OKeX incident, is that it market manipulation is the problem. It's not the responsibility of the SEC to scrutinize cryptocurrency’s fundamentals. The SEC needs to look at the ETF product itself and the market where it will trade, rather analyzing Bitcoin and its markets.