Analysis: The lack of liquidity has exacerbated the sell-off of BCH triggered by Mt.Gox

PANews reported on July 9th, according to CoinDesk, that based on TradingView data, Bitcoin Cash (BCH) fell by 20% last week, marking the largest drop since April. This sell-off occurred as the now-defunct exchange Mt.Gox announced it would begin repaying creditors for tokens worth about $9 billion stolen in a 2014 hack attack. This includes BCH valued at $73 million, equivalent to 20% of the token's daily trading volume.

Kaiko stated that due to the expected large-scale liquidation by Mt.Gox creditors, BCH holders panicked and sold off their holdings. The poor liquidity of centralized exchanges (i.e., poor order book depth) exacerbated this panic. In markets with poor liquidity, traders find it difficult to execute large orders at stable prices and a single large buy or sell order can have a disproportionate impact on asset prices leading to volatility spikes.

In its Monday newsletter Kaiko said: "Looking at the slippage from simulating a $100k sell order for BCH shows that most exchanges' price slippages reached their highest level in over a month indicating deteriorating liquidity due to insufficient depth of market orders." Slippage refers to the difference between an anticipated trade price and actual execution price; increased slippage indicates poor market liquidity and/or high volatility. According to Kaiko, on July 5th - when Mt.Gox announced refunds - Bybit's BCH market saw slippage rise from 0.2% up to 2.8%, while Itbit's rose from 0.3% up until reaching 3.5%. Kaiko noted that these increases in slippage were consistent with strong selling pressure related to Mt.Gox repayment events; Itbit and Bybit had seen some of the greatest increases in slippage rates.
Arca CIO Jeff Dorman commented that market makers have completely disappeared, a situation similar to the credit market in 2009-2010.