In light of recent developments in the cryptocurrency market, particularly surrounding Bitcoin and Bitcoin Cash, a new and intriguing strategy has surfaced for those looking to navigate these turbulent times. This approach involves leveraging the ongoing repayment process from the infamous Mt. Gox exchange.
To recap, Mt. Gox was a prominent cryptocurrency exchange that suffered a major hack back in 2014. Now, it has begun distributing substantial amounts of Bitcoin and Bitcoin Cash to its creditors, and this is significant because it means billions of dollars worth of Bitcoin and millions of dollars worth of Bitcoin Cash are flooding back into the market. When such large quantities of these cryptocurrencies become available, it can significantly impact their supply, demand, and ultimately, their prices.
Financial analysts have stated that this scenario could be opening up an opportunity for a market-neutral trading strategy known as pair trading. This strategy involves simultaneously buying and selling two related financial assets to profit from their relative price movements. In this case, the suggestion is to go long on Bitcoin while shorting Bitcoin Cash. In simple terms, buy Bitcoin and sell Bitcoin Cash.
The recommendation is based on the analysis that Bitcoin Cash will experience significantly more selling pressure compared to Bitcoin. In fact, many predict that the selling pressure for Bitcoin Cash will be four times larger than that for Bitcoin, potentially affecting their prices differently. This implies that while both cryptocurrencies might see a decline in prices, Bitcoin Cash could fall harder and faster. Thus, if you go ahead and apply the pair trading strategy, you could profit from the differing price movements between the two.
Additionally, it is assumed that those who have held Bitcoin for an extended period are more likely to retain their assets rather than sell them immediately. This behavior contrasts with the expected actions of Bitcoin Cash holders, who are anticipated to sell their assets more rapidly.
Ultimately, all of these factors – differing levels of selling pressure, trading volumes, and holder behaviors – seem to be creating a scenario where a pair trade could be profitable. However, you should remain cautious and still consider the different risk factors before implementing this strategy. Keep abreast of any market developments that could impact the prices of Bitcoin and Bitcoin Cash, be prepared for potential volatility and have a robust exit strategy in place to protect your investments from sudden market shifts, such as the stop loss strategy.
