Day: July 4, 2024

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Concerns that the Mt. Gox bankruptcy redemptions will drive down the price of Bitcoin (BTC) are largely unfounded, according to Presto Labs’ Head of Research. However, the scenario could be more bearish for Bitcoin Cash.

Market Impact Analysis

As Bitcoin’s price continues to dip below $60,000, the market has already seen over $200 million in liquidations as the trading day began in Asia on Thursday, CoinDesk reported. The former exchange, Mt. Gox, is set to return approximately $9.5 billion in BTC to its customers. Additionally, it will also distribute 143,000 BCH, valued around $73 million. With Bitcoin Cash’s daily trading volume at $308.8 million, this redemption constitutes roughly 24% of its daily trading volume, according to CoinGecko data.

Peter Chung of Presto Labs pointed out, “Our analysis shows that the selling pressure for BCH will be four times larger than for BTC: 24% of the daily trading value for BCH vs. 6% of the daily trading value for BTC.” Chung noted that BCH’s daily trading value is only 1/50th of BTC’s.

Selling Pressure on Bitcoin Cash

In an interview with CoinDesk, Chung explained that Bitcoin is expected to experience limited selling because those who wished to exit had already sold their claims on bankruptcy claim markets. “Weak-handed creditors had plenty of chances to exit over the last ten years on the back of aggressive bidding from the claim funds, so we can safely assume the current group of creditors consists of diamond-handed BTC bulls,” Chung said.

Chung suggests that creditors are likely to treat BCH as an “airdrop” and sell it immediately because Bitcoin Cash’s fork occurred three years after Mt. Gox’s bankruptcy. “Creditors are oblivious to BCH’s cause,” he continued.

Trading Strategies

Chung recommended a market-neutral trading strategy to handle this situation: “Long BTC perpetuals paired with short BCH perpetuals is the most efficient way to express this view, barring funding rate risk.” He added that those looking to secure a funding rate could explore other approaches, such as shorting term futures or borrowing BCH in the spot market.

Current Market Performance

According to CoinDesk Indices data, BCH is currently trading at $360, down 3.8%. The looming Mt. Gox redemptions and the potential selling pressure are key factors influencing its current performance.

Conclusion

While the Mt. Gox redemptions are not expected to significantly impact Bitcoin, Bitcoin Cash could face substantial selling pressure. This discrepancy is due to the higher relative impact of the redemptions on BCH’s trading volume compared to BTC. Traders are advised to consider market-neutral strategies to navigate this period of volatility.

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Fears of impending selling pressure from the defunct Mt. Gox exchange and potential miner sales pushed Bitcoin (BTC) under $59,000 on Thursday, marking its lowest level since late April. The anticipation of asset distributions from Mt. Gox, set to begin in July 2024, has contributed to the market’s anxiety.

Market Impact and Liquidations

Mt. Gox, which experienced a major hack in 2014, will start distributing assets to its clients next year. These repayments, made in Bitcoin (BTC) and Bitcoin Cash (BCH), are expected to exert significant selling pressure on both markets. In the past 24 hours, Bitcoin has lost 3.3%, according to CoinGecko data, with the sell-off starting shortly after the Tokyo equity markets opened.

Major cryptocurrencies also saw declines amid Bitcoin’s weakness. Ethereum (ETH) dropped 4%, while Solana (SOL) and Dogecoin (DOGE) fell as much as 8%. The broad-based CoinDesk 20 (CD20), which tracks the largest tokens, is down 4.8% in the past 24 hours.

Futures Market and Liquidations

Futures trades betting on higher prices saw significant liquidations, with over $230 million lost in the past 24 hours, according to CoinGlass data. BTC and ETH-tracked futures each experienced over $60 million in long liquidations, while products tracking DOGE, SOL, XRP, and PEPE recorded at least $4 million in losses.

These liquidations are the highest for long traders since late June. Binance  saw the most liquidations among crypto exchanges, totaling over $110 million. Liquidations occur when an exchange forcefully closes a trader’s leveraged position due to a partial or total loss of the initial margin. This happens when a trader cannot meet the margin requirements for a leveraged position, resulting in insufficient funds to keep the trade open.

Such data is useful for traders as it indicates leverage being effectively washed out from popular futures products, acting as a short-term signal of a decline in price volatility.

Market Outlook

Trading firm QCP Capital expressed a cautious outlook for the coming months. In a Thursday broadcast on Telegram, they stated, “We anticipate a subdued Q3 for BTC as the market remains uncertain around the supply from the Mt. Gox release.”

The looming distributions from Mt. Gox and ongoing miner sales are creating a cloud of uncertainty in the market. As Bitcoin and other major cryptocurrencies face this selling pressure, the market could see continued volatility and downward trends.

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Bitcoin (BTC-USD) slid to a two-month low on Thursday, extending a month-long decline as uncertainty over U.S. presidential elections and reports of bitcoin supply from the defunct Tokyo-based crypto exchange, Mt. Gox, weighed on the market.

Bitcoin fell more than 2% to $57,843, its lowest since May 2, and has lost more than 6% so far this week. The world’s largest cryptocurrency has been under pressure in recent months, with its slide accelerating this week following the first debate between U.S. presidential candidates Joe Biden and Donald Trump, which raised the possibility of Biden being replaced as a candidate.

“If he [Biden] is to be replaced, and there’s a lot of conversation going on around that, that person may not be pro-crypto,” said Josh Gilbert, a market analyst at digital brokerage eToro.

Bitcoin had a strong start to the year after the launch of exchange-traded funds (ETFs) in the U.S., propelling it to a record $73,803.25 in mid-March as investors poured in. However, the rally has fizzled, with bitcoin losing more than 21% since then.

A politically charged backdrop, with ongoing elections in France and Britain, is resulting in some risk reduction, analysts said, alongside the changing odds in the U.S. election campaign.

Mt. Gox Influence on Bitcoin Prices

Analysts also pointed to reports that Mt. Gox, the world’s leading exchange for cryptocurrencies before it went defunct in 2014, is repaying its creditors, which could be dragging bitcoin lower if those creditors offload their tokens.

“There is an anticipation that some of those original buyers of bitcoin will start to sell on the market, which is a fairly big chunk,” said Tony Sycamore, a market analyst at IG. Sycamore added that while this is a period of consolidation for the cryptocurrency after strong gains earlier this year, it could retest the March highs and probably push up towards $80,000.

Ether (ETH-USD), another major cryptocurrency, was trading more than 1% lower at $3,213.0, and is down more than 22% from its mid-March highs.

Political Uncertainty and Market Volatility

The uncertainty surrounding the U.S. presidential elections is a significant factor affecting the cryptocurrency market. The debate between Biden and Trump has added to the volatility, with investors concerned about potential policy changes that could impact the crypto sector. The possibility of a less crypto-friendly candidate replacing Biden has intensified these fears.

Market Outlook

Despite the recent downturn, some analysts remain optimistic about Bitcoin’s long-term prospects. The market is currently in a consolidation phase, which could be a precursor to another upward move. The anticipation of potential token sales from Mt. Gox creditors is a factor that needs to be monitored closely, as it could create additional selling pressure in the short term.

However, the underlying fundamentals of Bitcoin and other cryptocurrencies remain strong, with continued interest from institutional investors and ongoing developments in blockchain technology.

Conclusion

Bitcoin’s recent drop to a two-month low reflects the current uncertainty in the market, driven by political factors and potential large-scale token sales. While the short-term outlook is cautious, the long-term prospects for Bitcoin and the broader cryptocurrency market remain positive, with potential for significant gains once the current uncertainties are resolved.

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