The rise and fall of bitcoin billionaire Arthure Hayes (BitMEX)

Vanity Fair devoted a lengthy feature titled “Rise and fall of a Bitcoin Billionaire” to Arthur Hayes, the former CEO of BitMEX, who is presently in legal problems. His biography is told in detail in the renowned fashion and trends publication.

First and foremost, he is likened to Bobby Axelrod, a protagonist of the television series Billions, except that the T.V. series is centred in New York. At the same time, Arthur Hayes’ narrative begins in Hong Kong. Adam Ciralsky, the writer of the Vanity Fair story, actually chronicles the rise and collapse of Arthur Hayes with his colleagues with whom he founded BitMEX.

Arthur Hayes founded a crypto exchange that has transacted trillions of dollars. Now he is wanted by U.S. authorities, and insiders question if he and his associates are bad guys or victims of a two-tiered legal system favouring large banks against brazen outsiders.

Hayes was hitting the powder in Hokkaido one minute and smashing it on an underground squash court in Central—Hong Kong’s Wall Street the next. Meanwhile, he keeps one eye on an obscure-sounding currency exchange that he created out of nothing and via which more than $3 trillion has moved.

Vanity Fair of Arthur Hayes (BitMEX)

The African American financier turned rogue personifies the modern fintech pioneer since he is a screen star, gorgeous, and enormously wealthy. The feds, on the other hand, identify Arthur Hayes as a wanted man who “flouted” the law by working in the “shadows of the financial markets.” Hayes’ indictment was revealed in October, and he is still at large in Asia while prosecutors in New York aim to apprehend and try him on two felony counts carrying a maximum sentence of ten years in prison.

Prosecutors claim Hayes, with his business associates, violated the Bank Secrecy Act by failing to create and maintain a sufficient anti-money-laundering program to root out corrupt actors and filthy money. Meanwhile, Hayes’ cryptocurrency colleagues say he is being penalized for creating a creative product that has perplexed politicians, befuddled regulators, and, once widely popular, presented a challenge to some of the markets’ most powerful participants.

Adam Ciralsky, the writer of the Vanity Fair story, chronicles the rise and downfall of Arthur Hayes and his colleagues with whom he founded BitMEX. He begins with Arthur Hayes’ upbringing and education years in the United States and progresses to his job in Hong Kong, first with Deutsche Bank and subsequently at Citibank as just an ETF market maker. According to Vanity Fair, he gave up all to pursue a new obsession: Bitcoin.

Hayes was initially a nobody in crypto’s murky world of tax evasion, drug dealers, weapons smugglers, child sex traffickers, contrarian libertarianism, and wanker bankers yearning for a comeback to the gold standard. They were united in their dissatisfaction with traditional banking and its slow speed, onerous verification processes for account opening and moving money, and a perception that the connection between Big Finance and Big Government had grown much too close. In their opinion, governments, beginning with the United States and spreading outward, believed and acted as if they had a dominant position on money and managed to resist the crypto uprising, where the people invested in ostensibly anonymous digital assets to profit, hide their wealth, snub the establishment, or even some combination thereof.

The Rise

Arthur Hayes began small, with arbitrage: purchasing Bitcoin from one market and trading it at a profit in another. Things were going swimmingly until October 2013, when he was unable to access coins he had given to Mt. Gox, a Tokyo-based Brokerage that assisted customers in converting their holdings into “fiat money” — traditional legal currencies like the dollar, euro, sterling, or yuan. Mt.Gox said in early 2014 that cybercriminals had stolen approximately $500 million out of its vaults. Unlike the majority of the 24,000 depositors, Hayes was able to withdraw his funds and learnt an essential lesson: exchanges are a unique point of failure in an otherwise safe Bitcoin ecosystem. Mt.Gox may be the most well-known example, but dozens more exchanges have been hacked, and incalculable billions of dollars in Cryptos have gone.

Hayes chose to spend his money elsewhere. When he learned that Bitcoin was trading substantially higher on the Chinese territory, he purchased a bundle, moved the coins to a Chinese exchange, and exchanged them for yuan — literally dragging about a rucksack full of money.

It was a clever and somewhat profitable technique. But the real-world risks of transporting actual money across international boundaries inspired him to create an online exchange where customers could benefit from their Bitcoin by utilizing derivatives. (These are financial contracts whose value is determined by the performance of a certain underlying asset.)

Beer and Bitcoin

In January 2014, Hayes organized a meeting with Ben Delo, a bright British mathematician and programmer whose Oxford classmates ranked him the most inclined to succeed as a millionaire — and also second most likely to end up in prison. After graduation in 2005, he started to work for IBM, two hedge firms, and JPMorgan after relocating to Hong Kong. Both Hayes and Delo started to work together.

Delo, an expert in the back-office labour of creating complicated algorithms and high-speed trading systems, said they required a front-end software engineer to handle the consumption side of things while the two laid out what it would take to make Hayes’ idea a reality. Hayes knew exactly who he was looking for: Sam Reed, a young American developer and computer enthusiast.

Hayes, Delo, and Reed began working on the Bitcoin Mercantile Exchange in earnest (BitMEX). Arthur Hayes was the CEO, Ben Delo was the COO, and Sam Reed was the CTO (CTO). As formal as those names seem, BitMEX began as three guys with computers working throughout the day out of a Starbucks in Jardine House, a 1970s-era Hong Kong tower with porthole windows. They’d go to Hayes’ flat at night and drink 7-Eleven beers.

BitMEX was “a peer-to-peer brokerage platform that enables leveraged contracts purchased and sold in Bitcoin.” It allowed users to wager on the currency’s future price using a leverage of up to 100 to one. In other words, a consumer with $10,000 within their BitMEX wallet might easily execute a deal for $1 million. The allure of the exchange was that consumers might make a lot of money by investing a small amount of cryptocurrency.

Magical Concepts

Understanding what BitMEX was selling may be less crucial than understanding who the firm was selling to. Hayes asserted in our early chats that BitMEX had “no American consumers” and that technological impediments, like barring U.S. I.P. addresses, kept Americans off the platform—and stateside regulators at bay.

However, U.S. authorities stated that this was not the case. It did not escape their notice that BitMEX had many American depositors, many of whom used virtual private network (VPN) software to conceal their location. Thousands of people were going to BitMEX.

BitMEX was established in Seychelles, allowing the company to grow quickly and limit its tax exposure as European governments struggled to understand, let alone devise a means to control, the novel financial markets and products that BitMEX was creating.

The company’s fortunes shifted in late 2015 when it began offering consumers 100x—five times the leverage of its nearest competitor. Political turbulence the next year, with Brexit and Donald Trump’s victory, increased crypto trading volume. BitMEX had to hire 30 new personnel in 2017 to keep up with the increased trading volume. The firm moved into a new office space, which it quickly outgrew. By 2018, BitMEX has evolved into a high-stakes marketplace, transacting billions daily.

Taipei’s Confusion

The quantity of money going through BitMEX by the summer of 2019 was astonishing. On June 27, the business claimed a new daily record of $16 billion transactions. “One Trillion Dollars moved in a year; the data don’t lie,” Hayes tweeted two days later. BitMEX isn’t anything to fuck [sic]. @Nouriel, I’ll be back on Wednesday.” He was tweeting to Nouriel Roubini, a distinguished NYU economics professor and BitMEX’s most vocal opponent.

On July 3, the two squared off live at the Asia Blockchain Summit during what was dubbed “the Tangle in Taipei,” taking their seats while the Rocky theme played overhead.

When asked if he would admit that regulatory agencies in the U.S. and Europe are on a somewhat higher level compared to those in Seychelles, Hayes said, “It just takes more to bribe them.” And how much did Hayes spend to corrupt Seychelles officials? His response: “a coconut.”

The Final Act

At 6 a.m. on October 1, 2020, FBI officers arrived at a spacious colonial in a pleasant Boston suburb. According to public records, the residence was acquired a year previously by a Delaware LLC. Sam Reed, the true owner of the land, was handcuffed and hauled away.

Audrey Strauss and William F. Sweeney Jr., director of the FBI’s New York field office, confirmed the indictment of BitMEX’s founders — Hayes, Delo, and Reed — a few hours later.

The men were charged with breaking the Bank Secrecy Act and conspiring to violate it “by knowingly failing to create, execute, and maintain an appropriate anti-money-laundering program.” Each offence carries a potential sentence of five years in prison. Reed, the country’s sole defendant then, was freed after paying a $5 million bond and agreeing to forfeit his passport.

The court did not believe the company’s claim that it was inaccessible to Americans. According to a court lawsuit, BitMEX earned a large portion of its traffic and fees from users in the United States. Prosecutors said that the company’s anti-money-laundering and know-your-customer procedures and processes were largely cosmetic: “BitMEX permits users to register accounts with an anonymous email and password, as well as a Bitcoin deposit.

Conclusion

Even if they win the authorities at trial or settle ahead of time, it may not be the end of their problems. BitMEX and its creators have been charged by investors and consumers who allege they lost funds trading on a network they believe are rigged against them. The most eye-catching complaint, though, comes from an early investor called Frank Amato, who sought to pay out his alleged stock in the firm.

Amato claimed in one of his filings that Hayes, Delo, and Reed long ago began to ghost away their finances and knew by not later than the start of 2019 that they were being investigated investigation by U.S. regulatory agencies since co-founder Reed was ousted from power by — and reportedly made misrepresentations to — the CFTC.” According to a person acquainted with Amato’s action, each guy reportedly paid himself $140 million in numerous tranches with that knowledge. While these sums cannot be confirmed — and are not particularly exceptional, considering CEOs frequently earn rewards for corporate performance — they nevertheless represent a sizable windfall, even to a trio of billionaires.