Liquidation, Leverage and Optimal Margin in Bitcoin Futures Markets

Using the generalized extreme value theory to characterize tail distributions, we address liquidation, leverage, and optimal margins for bitcoin long short futures positions. The empirical analysis of perpetual on BitMEX shows that (1) daily forced liquidations out- standing are substantial at 3.51%, 1.89% short; (2) investors got liquidation do trade aggressively with average leverage 60X; (3) exchanges should elevate current 1% margin requirement 33% (3X leverage) 20% (5X reduce call probability 1%. Our results further suggest normality assumption return significantly underestimates margins. Policy implications also discussed.