Concerns that the Mt. Gox bankruptcy redemptions will drive down the price of Bitcoin (BTC) are largely unfounded, according to Presto Labs’ Head of Research. However, the scenario could be more bearish for Bitcoin Cash.
Market Impact Analysis
As Bitcoin’s price continues to dip below $60,000, the market has already seen over $200 million in liquidations as the trading day began in Asia on Thursday, CoinDesk reported. The former exchange, Mt. Gox, is set to return approximately $9.5 billion in BTC to its customers. Additionally, it will also distribute 143,000 BCH, valued around $73 million. With Bitcoin Cash’s daily trading volume at $308.8 million, this redemption constitutes roughly 24% of its daily trading volume, according to CoinGecko data.
Peter Chung of Presto Labs pointed out, “Our analysis shows that the selling pressure for BCH will be four times larger than for BTC: 24% of the daily trading value for BCH vs. 6% of the daily trading value for BTC.” Chung noted that BCH’s daily trading value is only 1/50th of BTC’s.
Selling Pressure on Bitcoin Cash
In an interview with CoinDesk, Chung explained that Bitcoin is expected to experience limited selling because those who wished to exit had already sold their claims on bankruptcy claim markets. “Weak-handed creditors had plenty of chances to exit over the last ten years on the back of aggressive bidding from the claim funds, so we can safely assume the current group of creditors consists of diamond-handed BTC bulls,” Chung said.
Chung suggests that creditors are likely to treat BCH as an “airdrop” and sell it immediately because Bitcoin Cash’s fork occurred three years after Mt. Gox’s bankruptcy. “Creditors are oblivious to BCH’s cause,” he continued.
Trading Strategies
Chung recommended a market-neutral trading strategy to handle this situation: “Long BTC perpetuals paired with short BCH perpetuals is the most efficient way to express this view, barring funding rate risk.” He added that those looking to secure a funding rate could explore other approaches, such as shorting term futures or borrowing BCH in the spot market.
Current Market Performance
According to CoinDesk Indices data, BCH is currently trading at $360, down 3.8%. The looming Mt. Gox redemptions and the potential selling pressure are key factors influencing its current performance.
Conclusion
While the Mt. Gox redemptions are not expected to significantly impact Bitcoin, Bitcoin Cash could face substantial selling pressure. This discrepancy is due to the higher relative impact of the redemptions on BCH’s trading volume compared to BTC. Traders are advised to consider market-neutral strategies to navigate this period of volatility.
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