Coinspeaker Presto Labs: Mt. Gox Repayments Pose Risk to BCH, Not BTC
A recent analysis from Presto Labs’ has revealed a potential risk scenario for Bitcoin Cash (BCH) due to the impending repayments from the Mt. Gox estate. Contrary to popular concerns, Bitcoin (BTC) is expected to remain relatively unaffected.
Impact of Mt. Gox Repayments on BTC and BCH
Mt. Gox is preparing to repay approximately $9 billion in BTC and 143,000 BCH (valued at around $73 million) to its creditors between July 1 and October 31, 2024. According to CoinGecko, BCH has a daily trading volume of $308.8 million, making these repayments approximately 24% of its daily volume.
Peter Chung, Head of Presto Labs, predicted that BCH will face higher selling pressure compared to BTC. While it’s expected that only a fraction of BTC will be sold due to the ‘diamond-handed’ nature of most creditors, BCH is likely to experience immediate selling. Presto Labs’ analysis suggests that the selling pressure on BCH could be four times that on BTC, with BCH sales amounting to 24% of its daily trading volume compared to BTC’s 6%.
Alex Thorn, Head of Research at Galaxy Digital, shared additional insights in a Twitter thread. He noted that Mt. Gox creditors are typically long-term Bitcoin holders and tech-savvy early adopters, suggesting they are less likely to sell their BTC immediately.
creditors have been stuck in mt gox bankruptcy for 10+ yrs–finally trustee says in-kind distribution of #BTC #BCH will begin in july. we think fewer coins will be distributed than people think & that it will cause less #bitcoin sell pressure than market expects
here's why 👇
— Alex Thorn (@intangiblecoins) June 24, 2024
Thorn also highlighted that BCH liquidity is significantly lower than BTC, particularly on exchanges like Kraken and Bitstamp where creditors will receive their coins. This lower liquidity could intensify the selling pressure on BCH.
Trading Strategy
To capitalize on this situation, Chung recommends a market-neutral trading strategy. This involves going long on BTC perpetual futures and shorting BCH perpetual futures, thus minimizing funding rate risks and leveraging the asymmetric supply dynamics.
For example, using Binance USD-M futures, traders can go long BTCUSDT perps and short BCHUSDT perps. In 2024, the average funding rate is 13%. For a three-month trade, the breakeven is 3.25%. With the BTC/BCH ratio at 161, a move to 193 (+20%) would yield a 17% return after costs. The ratio’s all-time high was 252 in May 2023.
The Civil Rehabilitation Plan
Mt. Gox’s Rehabilitation Trustee is set to distribute BTC and BCH to creditors under the Civil Rehabilitation Plan. Creditors can choose an Early Lump-Sum Payment (ELSP), which offers a smaller, immediate payout instead of waiting for a full recovery. This option is popular among creditors seeking certainty and wanting to avoid risks associated with ongoing legal issues, such as the CoinLab lawsuit.
Mt. Gox, once the largest Bitcoin exchange in the world, collapsed in early 2014 after it was discovered that the exchange had lost nearly 850,000 BTC belonging to its customers. The loss, attributed to a combination of hacking and poor management, resulted in the exchange filing for bankruptcy. As repayments loom, the cryptocurrency market is once again bracing for a major impact.
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Presto Labs: Mt. Gox Repayments Pose Risk to BCH, Not BTC