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Technical Analysis and Trading Strategies for Segwit2x

Segwit2x

What is Segwit2x?

Segwit2x calls for a very specific hard fork (or a change to bitcoin’s rules). It is a hard fork because both the miners and nodes must accept the rules upgrade. Segwit2x would allow for the increased size of the blocks from 1 MB to 2 MB.

What do the charts tell?

Below are the charts showing the historical resistance line from the beginning of the year. Right now we’re hitting the trend line. This is a very good opportunity to short. But, if the trendline is broken, there is no more resistance above,which could mean a very fast run up to 10k USD.

With the fork coming up, I would expect most people to be bearish, but it seems that new investors are treating this fork like free money. Either this dumps before the fork or after it. The countdown for the fork is here –  https://coinsalad.com/2x/countdown

These are fib supports and resistances. Breaking above or below any of those lines means that it is a good opportunity to enter a trade.

Here are some strategies given by Bitmex which can allow you to profit from their policy of following the BT1 chain –

Given the market knows that BitMEX will not adjust the underlying indices, XBTZ17’s basis will trade lower to reflect the implied value of B2X. Thankfully due the current bull market, XBTZ17 trades at a positive basis. This is a perfect entry point for the following trade.

Sell XBTZ17 vs. Buy spot Bitcoin

 

Initial Trade:

Short XBTZ17
Long XBT

At Fork Time:

Receive B2X

Trade Unwind Proceedure:

Close XBTZ17, by buying
Sell XBT
Sell B2X

Trade Profit and Loss

The futures are trading at a discount right now and you must predict whether the percentage discount is less than the expected B2X / Bitcoin ratio. Or you must have a longer term positive view on the value of B2X.

If you entered the futures vs. spot trade at a positive basis and the fork does not occur, you will still profit. However, you will be required to hold the spread until expiry in late December. Depending on your hurdle rate, this opportunity cost may outweigh the basis profit received.

If you entered the futures vs. spot trade at a negative basis and the fork does not occur, you will post a loss in the amount of the negative basis.

When you unwind the futures vs. spot spread, the futures contract might trade at a large positive basis. If this happens, you must hold the spread until expiry.

Trades Right Before and During the Fork Trades

 

Buy XBTUSD/XBTZ17 vs. Short Bitcoin spot

Profit is earned two ways. Firstly, XBTUSD’s basis will swing from negative to flat in the hours after the fork. Your are long the basis, therefore you profit. Secondly, the funding rate is negative. You will earn Bitcoin interest ever 8 hours while the rate is negative.

XBTZ17 should trade with a negative basis as well. Traders can purchase the futures contract, and sell it hours after the ex-date once the basis rebounds.

Where to short Bitcoin spot is a very important consideration. If the exchange where you short Bitcoin forces shorts to deliver B2X, then the trade should not be put on.

New to trading? Checkout our articles on basis of trading here

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