Bad news
Analysis: Lack of liquidity exacerbated the sell-off of BCH caused by Mt.Gox
On July 9, according to TradingView data, Bitcoin cash (BCH) fell 20% last week, the biggest drop since April. The sell-off occurred when the defunct exchange Mt.Gox said it would begin to repay creditors for about $9 billion worth of tokens stolen in the 2014 hack, including $73 million worth of BCH, equivalent to 20% of the token's daily trading volume.
Kaiko said that BCH holders panicked and sold in anticipation of large-scale liquidation by Mt.Gox creditors, and the poor liquidity of centralized exchanges (i.e., poor order book depth) exacerbated the panic. In a market with poor liquidity, it is difficult for traders to execute large orders at a stable price, and a large buy or sell order can have a disproportionate impact on asset prices, leading to an outbreak of volatility.
“Looking at the BCH price slippage for a simulated $100,000 sell order, price slippage on most exchanges reached its highest level in more than a month, indicating that liquidity is deteriorating due to insufficient order book depth for large market orders,” Kaiko said in a newsletter published on Monday. Slippage refers to the difference between the expected price of a transaction and the actual transaction price. Slippage surges represent poor market liquidity and/or high volatility. According to Kaiko, on July 5, the day Mt. Gox announced its refund, slippage in the BCH market on Bybit increased from 0.2% to 2.8%, and slippage in the BCH market on Itbit increased from 0.3% to 3.5%. Kaiko said that the poor liquidity “coincides with the strong selling pressure associated with the Mt. Gox repayment event, with Itbit and Bybit experiencing the highest increase in slippage.” Arca Chief Investment Officer Jeff Dorman said that market makers have completely disappeared, similar to the situation in the credit market in 2009-2010.
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