Author:
Gargoyle
Translation by Deep Tide TechFlow
Why is there a sell-off in Bitcoin ($BTC)? This is the result of multiple factors, including the Mt. Gox incident, ETFs, halving, and Germany, among others. I have prepared a comprehensive analysis of the current situation.
In the past week, Bitcoin has dropped from $71,000 to $57,000, a decrease of about 20%, unprecedented in a long time. Today, we’ll understand why this situation has arisen and what lies ahead for BTC.
Mt. Gox
The cryptocurrency exchange collapsed in 2014 due to a hack. At the end of last month, there were reports that Mt. Gox was about to begin repaying its creditors. Representatives of the exchange plan to distribute 142,000 BTC (0.68% of the total Bitcoin supply) to clients.
Many are concerned that creditors may choose to sell these received Bitcoins. Given the amount of BTC they hold, this will undoubtedly impact the market. Furthermore, just the fear of this possibility has led many to start selling their assets. But that’s not all.
BTC ETF
Spot Bitcoin ETFs make cryptocurrency prices more dependent on large investors’ sentiments. Currently, BTC ETFs hold 5% of the total Bitcoin supply. Earlier this month, ETFs experienced outflows again, putting pressure on cryptocurrency prices.
Challenges for Miners
On April 20, 2024, Bitcoin experienced a halving event, reducing miner rewards from 6.25 BTC per block to 3.125 BTC. For miners to continue mining, a rise in Bitcoin price is necessary, which many are hopeful for. However, the price has not risen as expected, forcing many miners to sell their BTC.
US Interest Rates
Lower interest rates make high-risk investments like cryptocurrencies more attractive. Minutes from the Federal Reserve’s (FRS) meeting indicate policymakers are reluctant to lower rates unless more data shows inflation moving towards the 2% target rate.
Germany
The German government holds a significant amount of Bitcoin and has started liquidating its assets. According to Arkham’s data, Germany recently transferred 400 BTC to Bitstamp, Coinbase, and Kraken exchanges. A total of 2,700 BTC has moved from government wallets to exchanges in the past two weeks.
All these factors together contribute to the current market conditions we observe. However, there are also factors supporting a Bitcoin rise, which we will discuss in detail.
Major Investors Not Selling BTC
Despite the drop in Bitcoin price, companies have not been selling their assets. Instead, many have begun purchasing BTC during the price decline. Despite the need for capital release, major miner Marathon Digital Holdings has not divested its assets. It is worth noting miner capitulation may indicate a potential trend reversal.
Historical data shows Bitcoin typically begins to rise approximately four months after a halving event. If history repeats itself, bulls may drive out bears by late summer.
Community
According to Santiment’s data, there is increasing social media calls to “buy the dip” in Bitcoin. When Bitcoin drops below $60,000, it is seen as particularly attractive. The chart below shows statistics of calls to buy Bitcoin across various social networks.
Expectations of Fed Rate Cuts
While most market participants are convinced the Fed will not cut rates at its next meeting in late July, representatives hint investors may see rate cuts later this year.
US Elections
The US cryptocurrency community is rapidly growing, and presidential candidates have not ignored this topic. Following recent debates, there is belief that Donald Trump, who openly pledges support for crypto market development, could become president. If elected, SEC leadership favorable to cryptocurrencies could be anticipated.
Conclusion
I have analyzed both positive and negative factors affecting the current market. I do not wish to impose any viewpoints; instead, conduct your own analysis and formulate your strategy. Personally, I believe Bitcoin is a very good long-term investment (at least 4 years). I am optimistic about the future of cryptocurrencies and believe the market conditions are favorable.
