Inside the mystery of BitMEX’s insurance fund

Crypto exchange BitMEX is winding down with roughly $270 million sitting in a house insurance fund that customers now suspect its owners will simply keep. 

The fund holds about $239 million worth of BTC and $31 million in USDT. A lot of that came from customers’ trading losses.

The exchange hasn’t disclosed where the money will go after its doors close on September 23 and BitMEX declined to comment on its plans for the fund.

To be clear, the fund is owned by BitMEX, not customers, and the exchange never told customers what it would do with the fund if it ultimately closed for business.

Moreover, the fund has paid out to customers during certain loss events, honoring the exchange‘s original promise.

Still, plenty of people are upset given the substantial size of the fund and a November 2025 rebalancing that drained it of the overwhelming majority of its assets at the time.

The exchange’s proprietary token also seems to have little promise of retaining much value after September. It’s already lost 96% of its value year-to-date after a steep crash on the closure news.

Speculation about BitMEX owners overtaking the insurance fund is rampant on social media, as allegations earned hundreds of thousands of impressions on the trending topic.

For context, BitMEX’s use of the word insurance is repurposed, a common practice by the crypto industry. Its borrowed name doesn’t actually mean insurance by conventional understanding.

Rather than funding it with policyholders’ insurance premiums or stockholders’ paid-in capital, by and large, BitMEX funded its so-called insurance fund with liquidated assets from customers who lost money trading using BitMEX-provided leverage.

Immediately incensed, plaintiffs filed a proposed class action the same day as BitMEX’s closure announcement.

Plaintiffs alleged that BitMEX’s fund grew quickly during downside volatility and times of stress when customers would have appreciated insurance payouts.

Instead of shrinking during adverse events to offset losses as other insurance funds might have, the fund grew as BitMEX force-closed leveraged bets by its customers.

Although no court has reviewed the allegations, plaintiffs BKX Services and David Namdar say the exchange liquidated their positions. The two say they lost over 622 BTC between them and want to add claims representing similarly situated US customers who traded on BitMEX since July 2018.

Like other lawsuits before, they are seeking the return of their assets plus fees. Prior lawsuits have ended in dismissal, such as a 2020 class action led by Brett Messieh.

Read more: The history of crypto exchanges trading against their own customers

This week’s new lawsuit piles on allegations, describing an in-house trading desk with what it calls “God access” to hidden orders and customers’ liquidation points.

In-house traders, plaintiffs allege, were uniquely able to trade during the server freezes that locked out most other customers.

A civil complaint is merely a document making allegations. Readers shouldn’t interpret claims by plaintiffs seeking money as true nor probable until a court adjudicates the evidence.

For years, the insurance fund held tens of thousands of BTC, peaking above 36,400 during the March 2020 crash. Then came the crypto crash of October 10-11, 2025.

A surprise 100% China tariff threat and flash-crash prices on several Binance trading pairs helped erase more than $19 billion in leveraged positions industry-wide. BitMEX said its fund absorbed only about $2 million in losses during the incident, sailing through relatively unscathed.

Weeks later, it shrank the fund by roughly 90%.

Specifically, on November 18, 2025, BitMEX announced it would rebalance its insurance fund to “approximately 3,600 BTC and just over 30,000,000 USDT” to “better reflect the risks in its markets.” The rebalancing, it promised, would have “no impact on our traders.” 

It didn’t say what happened to the tens of thousands of BTC it supposedly no longer needed after that rebalancing.

The math is unforgiving. At today’s BTC price near $64,000, the old fund would have been worth $2 billion. The rebalanced version is worth about $270 million — and it’s going away entirely after September.

At the 52-week high of BTC above $126,000, the value of BitMEX’s pre-rebalanced insurance fund topped $4.5 billion.

“There used to be 36,000 BTC in the BitMEX insurance fund, now 3,600. Are they the ones selling I wonder,” posted one skeptic.

“I guess last year they ‘rebalanced’ the insurance fund down from 13-14k to 3,600 ie they pocketed 10k BTC,” alleged another.

The business closure news sharpened suspicions. “Wow.. Arthur Hayes and his partners will profit around $270 million bucks Is this the reason BitMex is shutting down? To collect this Insurance Fund cash?” asked Aaron Bennett.

Neither BitMEX nor Arthur Hayes have answered their questions.

Protos previously documented how the exchange ran a for-profit market maker and paid a $100 million settlement with the Commodity Futures Trading Commission.

Founders Hayes and Benjamin Delo later pleaded guilty to a Bank Secrecy Act violation, before a Trump pardon erased their legal jeopardy.

None of this is new to the courts. Traders have sued and lost against BitMEX over market-manipulation claims before, and the founders remain free men.

What is new is the deadline. After September 23, 2026, the customers who filled the insurance fund one liquidation at a time will have no exchange left to ask where their BTC went.

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