Presto Labs: Mt. Gox Repayments Pose Risk to BCH, Not BTC

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As an experienced analyst, I believe that the impending repayments from the Mt. Gox estate could have a significant impact on Bitcoin Cash (BCH) but is unlikely to cause major turmoil for Bitcoin (BTC). The upcoming distribution of approximately $9 billion in BTC and 143,000 BCH to Mt. Gox creditors between July 1 and October 31, 2024, represents a substantial portion of daily trading volume for BCH but only a fraction for BTC.

As a researcher studying the cryptocurrency market, I’ve come across an interesting discovery from Presto Labs’ latest analysis. They’ve identified a potential risk for Bitcoin Cash (BCH) due to upcoming repayments from the Mt. Gox estate. Contrary to common worries, Bitcoin (BTC) is predicted to remain relatively unscathed by these developments.

Impact of Mt. Gox Repayments on BTC and BCH

As an analyst, I’d rephrase it as follows: Mt. Gox is planning to make repayments totaling around $9.1 billion in Bitcoin (BTC) and $73 million in Bitcoin Cash (BCH) to its creditors between July 1, 2024, and October 31, 2024. Based on the data from CoinGecko, the daily trading volume for Bitcoin Cash is approximately $308.8 million. This means that these repayments would equate to roughly 24% of Bitcoin Cash’s daily trading volume during this timeframe.

According to Peter Chung, the Head of Presto Labs, it’s anticipated that a smaller proportion of Bitcoin (BTC) will be sold due to the strong-handed attitude of most investors. On the other hand, Bitcoin Cash (BCH) is believed to encounter significant selling pressure. The research conducted by Presto Labs indicates that this selling pressure on BCH could be fourfold compared to BTC. Consequently, around 24% of BCH’s daily trading volume may be sold, as opposed to the 6% for Bitcoin.

Alex Thorn, the Head of Research at Galaxy Digital, provided further observations in a series of tweets. He mentioned that most Mt. Gox creditors can be identified as experienced Bitcoin investors and tech-forward pioneers. Consequently, it’s less probable for them to quickly dispose of their BTC holdings.

As a researcher studying the ongoing Mt. Gox bankruptcy case, I’ve noticed that creditors have been waiting for over a decade to regain access to their Bitcoin and Bitcoin Cash holdings. Recently, the trustee announced that in-kind distributions of these cryptocurrencies will commence in July 2023. However, my team and I believe that fewer coins will be distributed than anticipated by the market, resulting in less sell pressure for Bitcoin than expected.

here’s why 👇

— Alex Thorn (@intangiblecoins) June 24, 2024

Thorn pointed out that the liquidity of Bitcoin Cash (BCH) is much less abundant than that of Bitcoin (BTC), noticeably on trading platforms such as Kraken and Bitstamp. The reduced availability of BCH may exacerbate the selling pressure for this cryptocurrency.

Trading Strategy

Chung advises taking advantage of the current circumstances by employing a market-neutral approach to trading. This method entails buying Bitcoin (BTC) perpetual futures contracts while selling Bitcoin Cash (BCH) perpetual futures contracts. By doing so, you reduce the impact of funding rates and amplify the price differences resulting from supply imbalances between the two cryptocurrencies.

As an analyst, I would advise that in 2024, traders can simultaneously hold long positions in Bitcoin-USD (BTCUSDT) perpetual contracts and short positions in Binance USD-Bitcoin Cash (BCHUSDT) perpetual contracts on the Binance platform. The average funding rate for these contracts is set at 13% in that year. For a three-month long trade, the breakeven point would be a 3.25% return.

The Civil Rehabilitation Plan

The Trustee overseeing Mt. Gox’s civil rehabilitation process intends to dispense Bitcoin (BTC) and Bitcoin Cash (BCH) to claimants according to the recovery plan. Some creditors may opt for an Early Lump-Sum Payment (ELSP), which entails a smaller, prompt settlement instead of waiting for the complete restoration of funds. This choice appeals to creditors who prioritize certainty over potential risks linked to ongoing legal matters, like the CoinLab dispute.

Mt. Gox, which was the largest Bitcoin exchange globally, faced a catastrophic collapse in early 2014. The incident came to light when it was disclosed that approximately 850,000 BTC – belonging to its clients – had gone missing. The loss, resulting from both hacking activities and mismanagement, left Mt. Gox with no other choice but to file for bankruptcy. With repayments imminent, the cryptocurrency market is gearing up for another significant shock.

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2024-07-04 14:12