News report:
Last week, the cryptocurrency market experienced a strong sell-off, causing Bitcoin to plummet from $60,000 to a low of $53,000, a 12% decrease. This sell-off has shifted the trading sentiment from consolidation to pervasive pessimism.
Ether has suffered even worse than Bitcoin, mainly due to the forced liquidation of long positions in Ether spot contracts, which further amplified the decline. The price of Ether ended up below $3,000, causing significant downward pressure on smaller cryptocurrencies in the Ethereum ecosystem.
The reasons for the decline can be summarized into three points: “Mt. Gox wallet transfer,” “continuous selling by mining farms,” and “Germany’s sale of Bitcoin.” Firstly, the Mt. Gox incident is considered an emotional sell-off, and the potential sale of $7 billion still worries investors, leading them to take profit and exit the market.
Although most analytical institutions believe that the actual impact of Mt. Gox on the market will not be significant, as many claims are likely lost, sold, or lacking documentation over the past decade, not all Bitcoin users will sell their holdings. A certain proportion of investors will choose to continue holding Bitcoin. However, we have seen many on-exchange investors choosing to exit and observe.
Next, the selling pressure from mining farms has led to the fate of losses or acquisitions for many small and medium-sized mining farms after the Bitcoin halving. This has created opportunities for large mining farms such as Riot and Digital Marathon to continuously expand their computing power. Riot also plans to expand its computing power fivefold, from 22 EH/s to 100 EH/s. This expansion requires a larger deployment of mining machines. To support capital expenditure, many mining farms choose to sell Bitcoin for cash, adding continuous selling pressure to the market.
The third point is that the German government chose to sell the confiscated Bitcoin assets directly on the exchange instead of through the OTC market. This decision is not wise, as if they had chosen OTC trading, the magnitude of this crash would not have been as severe. However, the government opted for the least beneficial method of completing the transaction, causing greater short-term price fluctuations. The high-leverage contracts that were previously bullish were all forcibly liquidated, further suppressing the Bitcoin price.
Loose monetary policies and interest rate cuts are long-term trends. In contrast to the on-exchange sell-off, Bitcoin ETFs have played the role of absorbing market liquidity. In the past week, Bitcoin ETFs have seen a net inflow of hundreds of millions of dollars, with only a small outflow of $20 million after Bitcoin itself experienced a sharp decline on Friday.
The net outflow of Bitcoin ETF funds is much lower than expected, indicating that Wall Street investors are still concerned about this crash but not in a panic. However, this is only data from one trading day. What we are concerned about is if Bitcoin continues to decline rapidly, it may trigger a chain reaction of net outflows from Bitcoin ETFs.
The crucial point is whether the German government will continue to sell cryptocurrencies in the secondary market, putting short-term pressure on the Bitcoin price. The market sell-off is still ongoing. If one cannot tolerate significant market volatility, it is advisable to establish some short positions to hedge against short-term downside risks. It is expected that the bearish factors will continue to outweigh the bullish factors until mid-July, and only then can we expect a recovery.
After this significant forced liquidation, the cryptocurrency market will need a long time to restore trading confidence. The estimated fair price of Bitcoin at $70,000 has not changed, but Ether may be a better trading target in the medium term.
However, if we extend the time horizon, we still have a positive view on the price performance of the cryptocurrency market. This short-term pullback may provide better entry opportunities. Firstly, the listing of Ether ETF in mid-July will lead to a wave of low-level buying by fund companies, unrelated to trading confidence but rather the necessary buying action for ETF issuance. If the price continues to decline until that time, it will also provide a good reason for investors to buy on the dip.
Furthermore, if we look forward to September, it is expected to be the first interest rate cut by the Fed. Considering the upcoming US elections, reducing public pressure and proactively avoiding an economic recession in the United States, the Fed has a great chance of cutting rates ahead of time to test the market’s reaction. This also aligns with the market’s expectation of one interest rate cut this year through Fed meetings.
In the long term, the continuation of the loose monetary policy in the United States will not change. Holding Bitcoin remains the best option for value storage. Those who have light positions can take advantage of this pullback to continue buying, achieving a lower average cost and waiting for subsequent price rebounds.
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