Bitcoin Cash (BCH) took a hit last week when Mt. Gox announced it would pay back its creditors. BCH, created in 2017 through a hard fork of the Bitcoin blockchain, fell 20% in value following the announcement.

The drop was the biggest since April. Mt. Gox decided to start paying back creditors for about $9 billion worth of tokens stolen in a 2014 hack. Those tokens included $73 million worth of BCH, which accounted for 20% of BCH's daily trading volume.

The real danger may be that BCH's price could fall as Mt. Gox creditors anticipate possible liquidations due to thin liquidity on centralized exchanges, leading to panic selling by BCH holders. Paris-based Kaiko described the situation as "thin order book depth."

In thinly liquid markets, it becomes difficult to execute large orders at a fixed price, increasing volatility.

Kaiko's data showed that for a simulated $100,000 sell order on a centralized exchange, the BCH bid-ask spread reached its highest level in more than a month.

This shows that large market orders are deteriorating liquidity due to insufficient order depth. Fewer market makers, liquidity issues highlighted The reduction in market makers providing liquidity to the crypto market has caused serious problems, especially for alternative cryptocurrencies or altcoins.

In November 2022, Alameda Research and FTX went bankrupt, causing liquidity providers to exit the market.

Arca Chief Investment Officer Jeff Dorman said that this situation has led to a liquidity depletion similar to the 2009-2010 credit crisis. Dorman pointed out that due to the withdrawal of market makers, there was no liquidity inflow and liquidity was exhausted. Since there were no intermediaries to smooth transactions, this exacerbated market volatility.

The Bitcoin Cash plunge caused by the Mt. Gox repayment incident led to large price fluctuations on centralized exchanges under weak liquidity, highlighting the problems of fewer market makers and liquidity depletion. If measures are not taken to increase liquidity, similar situations are likely to occur in the future.

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