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