Trading Tip: Attempt to obtain free Bitcoin Cash on Bitfinex

BitMEX Research

Abstract: In this piece we explain a reasonably risky way to obtain free Bitcoin Cash (BCH) on the Bitfinex platform, by purchasing the BCC token.  This BCC token represents the Bitcoin Core side of the Bitcoin Unlimited futures contract.

Strategy overview

As we explained in our piece a few weeks ago, Bitfinex allow their customers to trade various Bitcoin chain split tokens, however as we explained some of these tokens have overlapping periods.

One of these tokens, Bitcoin Cash (BCH), launched in August 2017, we discussed this token in our earlier piece on the subject.  The launch of Bitcoin Cash occurred during the Bitcoin Unlimited futures contract period.  Therefore in theory, those who held BCC (the “Bitcoin Core” side of the Bitcoin Unlimited contract), had their Bitcoins locked up in this contract at the time of the Bitcoin Cash hardfork.  When this contract settles in December, holders of BCC may receive some Bitcoin Cash.

Bitfinex even eluded to this with the following statement:

CSTs with overlapping contract periods and other forking events may need to be adjusted to reflect the correct economics. We are aware the the BCC/BCU CSTs need retroactive adjustments to reflect BCH, as well as BTG, after the event tomorrow. Similarly, BT1/BT2 may need to be adjusted to reflect any BTG that accrues to the locked up BTC. We have a plan for this and may not be able to implement it immediately, but it is fair to our users and will be applied retroactively in a non-intrusive way. More details will follow on this next week.

Source: Bitfinex

 

Investment recommendation

Due to the recent price rally in Bitcoin Cash, with it currently trading at around 0.35 BTC, in our view, it may be a good idea to invest in the BCC token on Bitfinex, to try to obtain some exposure to Bitcoin Cash, without paying for it.

There are two ways of achieving this:

  1. Buy BCC in the market.  The current price of BCC is around 0.96 BTC and in theory the price could increase and trade at 1.0 (Or in theory BCC could even trade at a premium to BTC, although new units can be created if this occurs).
  2. Deposit BTC into Bitfinex and then split it into BCU and BCC.  Then one could hold the BCC to the settlement date and hopefully obtain the free BCH.

There are some risks to this trade, as we explain in the section below.  However, with the recent rally in the BCH price, in our view, the risk/reward balance is somewhat favorable.

 

Investment risks

  • Distribution coefficient – Although the Bitcoin Unlimited futures contract launched prior to BCH, the split tokens could be created both prior to and after the launch of BCH.  Therefore there may not be sufficient BCH in reserve to allocate to all BCC token holders.  A distribution coefficient may be required in order to adjust for this.  Actually some market participants may create new BCC in order to benefit from the trading idea mentioned in this piece, which would make any distribution coefficient less favorable to BCC investors.
  • Bitcoin Cash price – The market value of BCH could fall substantially prior to the Bitcoin Unlimited contract settlement date.
  • Bitfinex Policy – Bitfinex policy with respect to this matter is uncertain and could change.
  • Counterparty risk – The risk that Bitfinex becomes insolvent prior to the Bitcoin Unlimited contract settlement date.