BitMEX’s Hidden Channels
Currency traders have recently been fined billions of US dollars for collusion using on-line chat rooms to share sensitive information and manipulate trades. Could BitMEX research’s channels on the lightning network be providing a more private venue to chat? And why does a ‘research’ network have channels with over 250,000 dollars on account?
There are 600+ BitMEX Research channels on the Bitcoin lightning network shown in Figure 1.[1] Full details of the node activities are given here.[2] What can the extent of this global ‘research’ communication be… they are blogging, but are BitMEX planning to publish a book?[3]
Officially, US investors are banned from BitMEX due to the lack of KYC/AML regulations. In practice however, this ban can be circumvented using a simple VPN.[4] Or, indeed, any investor from anywhere, with only a lightning node, can transfer bitcoin via BitMEX research’s channels.
The channel set-up is recorded on the Bitcoin blockchain, but after set-up and until the channel is closed funds can be transferred under the radar. For example, Figure 2 (below) shows a channel set up by OpenNode.com on 17 March 2020, with 52.42799477 bitcoin still on one side (Columbus, OH, United States) and 6.81572567 already transferred to BitMEX research.
There is no indication of what this research by BitMEX is, why it is being paid for, and indeed why some node in Ohio just put in over a quarter of a million dollars worth of bitcoin for this research.
Most channels are used for micro-transactions as intended when the Lightning Network was set up. But some channels are set up with a very small amount of bitcoin to be used only for communication via highly encrypted messaging, as explained in this excellent Bitcoin Magazine article.[5]
Currency traders have been fined huge amounts for cartel behaviour co-ordinated via on-line chat rooms. For instance, in May 2019 Citigroup, JP Morgan Chase, Barclays, Royal Bank of Scotland and MUFG Bank in Japan were fined $1.2 billion for using chat rooms to rig forex spot trading.[6] And in October 2018 the notorious “Cartel” in the UK cost global banks $14 billion in penalties.[7]
Could it be that they have simply moved to a more private venue?
Carol Alexander & Michael Dakos
@CryptoMarketRisk, QFIN, University of Sussex
[1] There are other BitMEX nodes on the lightning network, such as this https://1ml.com/node/0274ce2cee1266882c266940abd10d1a8c5285c68fd984e468e325884b9b5e526c/channels but the BitMEX research node is by far the most active.
[2] https://1ml.com/node/0395033b252c6f40e3756984162d68174e2bd8060a129c0d3462a9370471c6d28f
[3] https://blog.bitmex.com/lightning-network-part-6-over-60000-non-cooperative-channel-closures/
[4] https://www.bestbitcoinbroker.net/en/bitmex-exchange-for-us-traders/
[5] https://bitcoinmagazine.com/articles/how-the-lighting-network-could-improve-encrypted-messaging
[6] https://www.ft.com/content/73163fa0-77c5-11e9-bbad-7c18c0ea0201
[7] https://www.bloomberg.com/news/articles/2018-10-09/currency-cartel-traders-on-trial-for-chats-that-cost-billions
