News report:
Bitcoin’s value in USD remains extremely volatile. Despite signs of recovery over the weekend, the price plummeted this morning (Monday) as the Asian markets opened. What caused this drop? Was it due to the expected repayment from Mt.Gox or the selling off of Bitcoin by Germans? Additionally, the decision of the Federal Reserve regarding interest rate cuts should not be overlooked.
A Bloody Week
Bitcoin reached a peak of nearly $74,000 earlier this year, thanks to the anticipated approval of the Bitcoin exchange-traded fund (ETF) in the United States. However, due to cyclical fluctuations, the trading price of the cryptocurrency is currently around $57,500, a decrease of approximately 23%.
In just the past week, the value of Bitcoin has dropped by about 10%.
As usual, there are multiple reasons behind the fluctuations of Bitcoin. However, this time, bearish sentiment may have been triggered by certain events.
$9 Billion in Spending
One prominent catalyst could be the impending repayment to creditors of the now-defunct cryptocurrency exchange Mt.Gox. After a decade of numerous delays, the administrators of Mt.Gox have finally decided to repay the distressed creditors with Bitcoin and Bitcoin Cash.
At its peak, Mt.Gox handled 70% of Bitcoin transactions. However, the exchange is estimated to have lost 740,000 Bitcoins, leading to its closure in 2014.
Recently, Bitcoin wallets associated with Mt.Gox moved 47,228 Bitcoins. However, it is unclear whether these Bitcoins were transferred for the purpose of repayment. The expected influx of such a large amount of Bitcoin into the market could create selling pressure, contributing to the recent volatility.
The estimated payout from Mt.Gox is $9 billion. However, experts believe that the $1.1 trillion Bitcoin market has the potential to absorb the selling pressure from Mt.Gox creditors.
#This is an official announcement from MTGOX to their rehabilitation creditors. “We ask for the rehabilitation creditors who meet the requirements to wait for a while.” The wording is similar to what has been issued during the ten years that creditors have been waiting. I can see that most people are pleased with more delays. Especially non-creditors. pic.twitter.com/6sTcbTNaXY—Richard Heart (@RichardHeartWin) July 6, 2024
Willy Chuang, the Chief Operating Officer of the cryptocurrency exchange WOO X, told the cryptocurrency-focused publication Coindesk, “Mt.Gox moving a (significant) amount of Bitcoin marks the beginning of their repayment process, and this has raised some market concerns due to the potential massive sell-off.” He further added, “However, it is worth noting that despite these concerns, the long-term impact may not be as severe as the market gradually absorbs the selling pressure.”
German Sell-Off
Another major reason for the recent downward spiral of Bitcoin could be the selling off of confiscated Bitcoins by German authorities. Earlier this year, German law enforcement seized 50,000 Bitcoins associated with a pirated website.
After holding these confiscated cryptocurrencies for several months, a wallet associated with the German government moved 6,500 Bitcoins, worth approximately $425 million at the time. Through a series of transactions, 1,000 Bitcoins were sent to the cryptocurrency exchanges Kraken and Bitstamp. On July 4th, the blockchain analyst Arkham confirmed that the German government transferred an additional 1,300 Bitcoins, worth $76 million, to Kraken, Bitstamp, and Coinbase, causing a significant impact on the price of Bitcoin.
The German government also transferred another 1,700 Bitcoins to an address possibly used for institutional services or over-the-counter trading.
Update: The German government has sold up to $175 million worth of Bitcoin in the past 2 hours. The German government has transferred 1,300 Bitcoins ($76 million) to the exchange wallets of Kraken, Bitstamp, and Coinbase. They also moved 1,700 BTC ($99 million) to the 139Po address. These funds are likely to be moved to the exchange wallets… pic.twitter.com/ZMTxoipo5d—Arkham (@ArkhamIntel) July 4, 2024
Despite the sell-off, the German government still holds a significant amount of confiscated Bitcoins. Similarly, the U.S. government has accumulated a large number of Bitcoins over the years through confiscating them from illegal operations.
Is It the FBI?
While this is a regular occurrence, the decision of the Federal Reserve may be another factor behind the fluctuations of Bitcoin. On Thursday, the Federal Reserve decided not to cut interest rates in the next cycle. Although interest rate cuts are not directly related to Bitcoin, higher interest rates always attract investors to move their funds away from risky investments like Bitcoin.
Currently, the Federal Reserve’s fund rate stands at 5.5%, significantly higher than the 0.25% in March 2022.
Room for Upside Movement
Earlier this year, when the U.S. Securities and Exchange Commission approved Bitcoin spot trading for exchange-traded funds, Bitcoin entered the mainstream financial market. Prominent asset management companies like BlackRock and Fidelity, as well as nine other issuers, are currently listing Bitcoin spot ETFs on U.S. exchanges.
Additionally, the halving of Bitcoin mining rewards earlier this year had a historically positive impact on the price trend of cryptocurrencies.
Despite recent volatility, many analysts remain optimistic about Bitcoin. Analysts from CCData, a cryptocurrency data and research company, suggest that Bitcoin has not yet reached the top of its current upward cycle and is likely to set new historical highs.
CCData points out that Bitcoin’s decline always occurs before price increases, which last for 12 to 18 months, “and then a cycle top is formed.” These historical time frames have not elapsed since the most recent halving on April 19, 2024.
“Furthermore, we have observed that trading activity on major exchanges drops for nearly two months following the halving events of previous cycles, and this seems to be reflected in this cycle as well. This suggests that the current cycle may further extend into 2025,” the CCData report states.
