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According to Presto Research, the impending bankruptcy redemptions from Mt. Gox could create selling pressure on Bitcoin Cash (BCH), not Bitcoin (BTC). Presto Labs’ Head of Research, Peter Chung, highlights that the redemptions are likely to be bearish for BCH due to a lack of liquidity.
Mt. Gox, the defunct cryptocurrency exchange, will return $73 million worth of BCH to its former customers. This amount represents over 20% of BCH’s daily trading volume.
Contrary to fears that the bankruptcy redemptions might negatively impact BTC prices, Presto Labs suggests the impact will be minimal. Instead, BCH is expected to face significant selling pressure. Chung notes that BCH’s daily trading volume, approximately $308.8 million, means the $73 million redemption will account for about 24% of this volume.
Chung’s analysis indicates that the selling pressure on BCH will be four times greater than on BTC, given that BCH’s daily trading value is only 1/50th of BTC’s. This disparity suggests BCH will experience more pronounced price volatility as a result of the redemptions.
In an interview with CoinDesk, Chung explained that many BTC holders have already sold their claims on bankruptcy markets over the past ten years. This has likely left only the most committed BTC holders, or “diamond-handed BTC bulls,” as the remaining creditors.
Chung also pointed out that BCH was created three years after Mt. Gox’s bankruptcy, making it less relevant to the creditors. As a result, many creditors may treat the BCH redemption as an airdrop and sell it immediately.
For traders looking to capitalize on this scenario, Chung recommends a market-neutral strategy involving long BTC perpetuals paired with short BCH perpetuals, despite potential funding rate risks. He also suggests other approaches, such as shorting term futures or borrowing BCH in the spot market, to mitigate these risks.
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