Bitcoin Cash (BCH) Sell-Off Triggers 20% Slide

Last week, Bitcoin Cash (BCH) experienced a significant 20% decline, marking its largest drop since April. This sell-off was attributed to the announcement by the defunct exchange Mt. Gox regarding the repayment of creditors following the 2014 hack that resulted in the loss of approximately $9 billion worth of tokens. Among the tokens being reimbursed is $73 million worth of BCH, which accounts for 20% of the token’s daily trading volume.

Market Panic and Liquidity Concerns

The panic selling by BCH holders, in anticipation of potential mass liquidations by Mt. Gox creditors, was exacerbated by poor liquidity on centralized exchanges. Paris-based Kaiko highlighted the impact of poor liquidity on market dynamics, where traders struggle to execute large orders at stable prices, leading to increased price volatility.

Slippage and Liquidity Challenges

Slippage, the variance between expected and actual trade prices, spiked in BCH markets on platforms like Bybit and Itbit following the Mt. Gox announcement. This spike in slippage is indicative of deteriorating market liquidity and heightened volatility, making trading conditions challenging for market participants.

Market Maker Disruption and Liquidity Drought

The market has been grappling with liquidity issues, particularly in alternative cryptocurrencies, since the insolvency of FTX exchange and Alameda Research in November 2022. With major market makers like Alameda exiting the business, liquidity has dried up, leaving a void in the market structure. This absence of intermediaries has led to sharp price movements and a lack of liquidity support in the market.