As the bankrupt exchange Mt. Gox has initiated repayments of 142,000 BTC and 143,000 BCH to its creditors, Singapore-based quantitative trading firm Presto Labs analyzed that arbitrage opportunities have arisen and recommended that clients go long on BTC and short on BCH to profit from Mt. Gox's repayments.
Mt. Gox, the world's largest Bitcoin exchange, was hacked in 2014 and 850,000 Bitcoins were stolen. After 10 years of bankruptcy litigation, compensation has finally begun. It is expected that Mt. Gox will pay 142,000 BTC and 143,000 BCH to creditors before October.
As for the exact time when creditors will receive the tokens, Mt. Gox announced on July 5 that it had begun to repay debts to creditors through various cryptocurrency exchanges as planned. However, since the creditors receive repayments from different cryptocurrency exchanges, the specific time of receiving repayments will also vary. For example, Kraken's repayment period is 90 days, while Bitstamp's is 60 days.
Arbitrage opportunity coming?
Although the market is worried that this will intensify the selling pressure of Bitcoin, Presto Labs, a quantitative trading company in Singapore, believes that Mt. Gox's repayment will create arbitrage opportunities and recommends clients to go long on Bitcoin and short on BCH to profit from the Mt. Gox repayment process. The team led by Presto market analyst Peter Chung said in a report released on Wednesday:
The Mt. Gox trustee plans to distribute billions of dollars worth of BTC and BCH between July 1 and October 31, 2024, which could change the supply and demand dynamics of BTC and BCH during these four months, potentially opening up opportunities for pair trading.
Peter Chung pointed out that Presto Labs' analysis shows that BCH's selling pressure will be four times that of BTC, that is, 24% of BCH's daily transaction value is equivalent to 6% of BTC's daily transaction value. Putting aside the risk of funding rate, going long on BTC perpetual contracts and pairing short on BCH perpetual contracts is the most effective market neutral strategy. (Reminder from the dynamic area that this article does not constitute investment advice, please be careful of potential risks)
CoinGecko data shows that in the past 24 hours, BTC trading volume exceeded US$26.5 billion, while BCH trading volume was only over US$250 million.
Mt. Gox creditors will not sell all their BTC
Presto Labs also believes that investors who held Bitcoin in its early days may be "diamond-rich Bitcoin holders", so Mt. Gox creditors who received compensation are more likely to continue to hold part of their compensated Bitcoin rather than sell it directly.
However, Presto Labs said that the BCH investor base is much weaker, so Mt. Gox creditors who received BCH compensation may sell all of them in the short term.
Galaxy analyst: Selling pressure will be less than expected
Alex Thorn, head of research at Galaxy, also commented on X, and similarly believed that the ultimate selling pressure on Bitcoin caused by Mt. Gox would be less than expected.
He explained that since nearly 75% of creditors chose Early Payout (subject to a 10% reduction in value), only about 95,000 bitcoins will be used to pay compensation early (the remaining BTC will take longer to pay):
About 20,000 of these tokens belong to the claims fund
10,000 tokens belong to Bitcoinica BK
There are about 65,000 coins left that are owed to individual creditors.
And he expects that individual creditors will hold on to Bitcoin longer than the market expects:
Creditors are mainly long-term Bitcoin holders. They are early adopters who are technologically savvy.
Individual creditors have rejected attractive offers from claims funds over the years, suggesting they would rather get their bitcoin back than compensation denominated in U.S. dollars.
The capital gains tax impact of the sale would be significant. With prices rising, even if only 15% of the claims in kind were recovered, the claim holders would have made 140x the value (in USD) on the Bitcoin they recovered since the bankruptcy.
Therefore, in summary, he believes that the selling pressure of Bitcoin will not be greater than investors imagine. However, BCH may experience a more serious decline due to its low liquidity.
