Traders: How to Benefit from Mt. Gox Repayment Event Through Trading?

• Presto said that by betting on the strength of Bitcoin and shorting Bitcoin Cash, it is possible to adopt a market-neutral strategy to profit from the Mt. Gox repayment.

• The strategy stems from the supply and demand dynamics of BTC and BCH due to the allocation of billions of dollars worth of assets.

Singapore-based trading firm Presto Labs is advising clients to bet on stronger Bitcoin (BTC) and short Bitcoin Cash (BCH) in a market-neutral trade to profit from the ongoing Mt. Gox repayments.

Last week, hundreds of millions of dollars worth of BTC entered the market as defunct exchange Mt. Gox finally began making long-awaited repayments to creditors affected by the 2014 hack. Over $73 million worth of BCH will be distributed to traders in the coming months, while BTC is valued at $9 billion.

“Mt. Gox’s repayment plan distributes billions of dollars worth of BTC and BCH between July 1 and October 31, 2024,” Peter Chung, a market analyst at Presto, said in a note on Wednesday. “This could lead to changes in the supply and demand dynamics of BTC and BCH during this four-month period, potentially opening up pairing trading opportunities.”

Pairs trading is a trading strategy that involves buying and selling two financial assets simultaneously in order to profit from their relative price movements.

“Our analysis suggests that BCH will see four times more selling pressure than BTC — 24% of BCH daily volume vs. 6% of BTC daily volume. A long BTC perpetual swap paired with a short BCH perpetual swap is the most effective market-neutral way to express this view, barring funding rate risk,” Chung added.

CoinGecko data shows that in the past 24 hours, BTC trading volume exceeded US$27 billion, while BCH trading volume was US$180 million.

Presto further hypothesizes that early investors who hold Bitcoin are likely to be “diamond-rich Bitcoin holders,” and therefore more likely to hold onto partial repayments rather than outright sell their assets.

However, Presto said there is a “100% chance that BCH will have a “much weaker investor base” and could be 100% sold in the short term.