Update (1st Aug, ETA 11 hours to Fork): It seems that BitFinex is automatically ‘claiming’ short position for people who employed the trick below. Now the short position has dropped more than 50% to just 20K+. I guess if it continues to drop, we might end up only seeing a small pump for the 20K short to close.
There has been a popular tip going around the crypto-world regarding the use of margins on exchange to generate free BCC on 1st Aug when the split occurs.
The trick is pretty simple:
- Buy 1 BTC on exchange and hold it in your exchange wallet
- (On Margin) Short 1 BTC on Margin
- Wait for 1st Aug and you get free BCC on your +1 BTC and since you are not required to pay BCC on the margin short as per the rule
This method is touted to be delta neutral which means you can sleep through 1st Aug and not care about the price since your short and long will cancel each other out in terms of the delta.
However, that is not true!
Furthermore, contrary to what most people understand, do note that exchange are not likely to give 1:1 BTC/BCC after the fork. For most exchange, they will first look at the ratio of long/short before issuing out BCC thus you may get much less than 1:1 after the fork.
One way you may potentially get REKTED is you get a margin call on your short position as there is already a huge short to long ratio in most exchange. Furthermore, there are cost involving in closing a position as well as lending fees which is already going through the roof. You will also need to be able to sell your position in time before the short squeeze that are likely to happen right after the fork as shorts need to unwind their short position by going long (so they can go back to delta neutral).
Based on BFXData, the current Long/Short Margin funding ration at the time of writing is on it’s historical high.
What will likely to happen:
- On 1st Aug when the forks happen, people will be scrambling to close their short position as the prices of BTC is likely to go up
- There are simply not enough BTC in the books for people to buy-to-close and a short squeeze is triggered
- Due to the historical high ratio of shorts, panic will happen and a very violent short squeeze occurs, BTC price shoots through the roof and people get margin called out if they are over-leveraged
Be very careful if you are using the free BCC (long, short) method because it may turn ugly really quickly if you aren’t able to buy back your BTC in time after the fork.
