Bitcoin’s quantum risk could emerge in derivatives markets long before any distressed coins move on-chain, according to FalconX co-head of markets Joshua Lim, who used the X thread on April 16 to map what he considers the most tradeable signals around a potential q-day event.

Lim core argument is that the market issue is not simply whether Bitcoin can migrate to post-quantum cryptography. It’s also about whether the network will be able to politically decide what to do with Satoshi Nakamoto’s coins and other venerable products that may never take part in such a migration.

Quantum risk could hit Bitcoin through derivatives

Lim framed the issue as two separate questions. The first is technical: how Bitcoin can move away from the elliptic curve cryptography used to secure private keys. The second one is more tense. “How do we deal with the fundamentally non-mathematical and entirely socio-political question of what to do with Satoshi coins,” he wrote, arguing that the biggest risk of quantum computing is not just the corruption of cryptography but also the governance crisis that could follow.

He said a migration path for most of Bitcoin’s UTXOs is at least conceivable, pointing to BIP 361 as one example of a proposal that addresses both post-quantum migration and dealing with Satoshi-era coins. But this only solves part of the problem. Lim estimated Satoshi’s holdings at around 1.1 million BTC, while other venerable or lost coins at public-key addresses could raise the total exposed supply to as much as 1.7 million BTC, which he called “a $127 billion issue.”

He argued that these coins are different because they will likely not take part in any community-led migration unless Satoshi remains busy and willing to move them. This creates two outcomes, neither of which is comfortable for the markets. “Either Satoshi is still around and may move coins before the first of the week, in which case the price of BTC will fall as the market re-prices the likelihood of these coins being sold in the future,” Lim wrote. “OR Satoshi isn’t around and someone decides to steal the coins with a powerful enough QC.”

Therefore, according to Lim, Satoshi coins “are not a mathematical problem.” The available answers are political. One option would be to burn these coins through stewardship, which he said would raise stern questions about immutability, sovereignty and precedent. The second would be a tough fork, which would allow the market to choose between a coin-neutralizing chain and one that retains the current set of rules, even if that leaves open the risk of a possible takeover using quantum technologies.

Lim suggested that even trying the first path could lead to the second. “Our only countermeasure is to A) burn Satoshi’s coins through governance,” he wrote before presenting the compromise, “OR B) create a hard fork and let the market decide which BTC is real.” In his view, this is likely to become as much a political dispute over Bitcoin’s identity as a security response. He added that the most likely quantum thief, if such a scenario were to arise, would be an “actor at the state level.”

From there, Lim moved from theory to market structure. He compared each future fork to the August 2017 Bitcoin split that created BTC and BCH. He noted at the time that Bitcoin was a roughly $45 billion market, mostly retail, and many holders welcomed the fork because it effectively created an additional asset. Today’s market is different: around $1.5 trillion, much more institutional and surrounded by ETFs, quoted futures and options. This changes how risk would likely be transferred.

“Today’s hard fork, or even the prospect of one, would be a completely different beast,” Lim wrote. “This would result in extreme volatility and likely downward price action: a large gap to the downside and massive cascading liquidations.” He added that if the community were almost evenly divided on whether to burn exposed coins, institutional investors could have a mandate to reduce risk ahead of the event, increasing downward pressure.

This is where derivatives come in. Lim argued that the earliest warning signs of Q-day risk are most likely to appear in long-term skewed options, forward options and in the spread of open interest in conventional and crypto systems. He emphasized that BTC’s long-term price swing is near multi-year highs and downside protection is relatively high-priced compared to call options, and said the last comparable rally was around the collapse of Three Arrows Capital and FTX in 2022.

He also signaled a long-term base, noting that Bitcoin futures are trading near multi-year lows compared to spot trading. In Lim’s view, one-day risks should squeeze or even reverse the base as market participants hedge against a downside while others take positions in the face of a possible fork-related “dump,” similar to the 2017 concept. Since the timing of any quantum break would be uncertain, he expects these signals to emerge further down the curve.

Still, he stopped brief of saying that the market is already pricing in the upcoming quantum event. Some signals are “flashing red,” he wrote, but could also be explained by broader systemic risks or secular changes, including growing institutional participation through platforms such as CME Options and IBIT. For now, Lim described the picture as mixed. His broader point was simpler: If a q-day ever starts to look real, investors probably won’t see it first in the movement of dormant coins. They will see it in derivatives.

At the time of publication, Bitcoin was trading at $75,024.

Featured image created with DALL.E, chart from TradingView.com