Over the past four days, the price of Bitcoin has fallen by more than 15%, with a significant 7.8% drop occurring in the last 24 hours. From a high of almost $72,000 in early June, the price of BTC is now down by almost 25%. Here are the key factors behind yesterday’s drastic price drop.
#1 Mt. Gox Bitcoin Repayments
The upcoming distribution of 142,000 BTC by shuttered cryptocurrency exchange Mt. Gox has caused significant market concern. The amount, representing 0.68% of the total Bitcoin supply, is to be distributed to creditors of the exchange, which shut down in 2014 due to a major hack.
The distribution process has already seen gigantic transfers, with 52,633 BTC transferred in recent hours, suggesting that preparations are underway for a large-scale withdrawal. Market observers and analysts are closely monitoring these movements, as a potential mass sale by these creditors could introduce significant volatility to the market.
Arguably, the psychological impact of this distribution led to preemptive selling among Bitcoin holders, further intensifying market anxiety.
#2 German government
The German government’s decision to begin liquidating its Bitcoin holdings also caused a stir in the market, with transactions reported on major exchanges such as Bitstamp, Coinbase, and Kraken.
In two weeks, the government has reduced its holdings from 50,000 BTC to 42,274 BTC. Market participants are understandably nervous that continued selling by a major holder like the government could lead to downward pressure on prices.
#3 Huge long liquidations
The Bitcoin market has seen a surge in long position liquidations, with a record $212 million worth of BTC liquidated in the past 48 hours. This liquidation is the most significant since April 13, when $261 million worth of BTC long positions were liquidated, leading to a pointed drop in the price of Bitcoin from $68,500 to $61,600.
Such liquidations often trigger a chain reaction, leading to forced sell-offs and further price declines. These liquidations indicate a highly leveraged market where investors may be overextended, contributing to increased market volatility.
#4 BTC Miners Surrender
Following the Bitcoin halving on April 20, 2024, the mining reward was halved from 6.25 to 3.125 BTC, increasing economic pressure on miners. This reward reduction was expected to boost the price of Bitcoin, but this boost did not occur, leaving miners with diminishing returns.
The current capitulation among miners is similar to previous market bottoms, such as the one following the FTX collapse, as researchers at CryptoQuant recently revealed. Indicators of miner distress, including a significant 7.7% hash rate drop and a pointed drop in mining revenue per hash to near-all-time lows, mean that many miners have been forced to shut down their equipment and sell their BTC stash.
#5 Bitcoin Spot ETF Activity Slows Down in the US
Despite expectations of a dynamic market fueled by institutional investment via spot Bitcoin ETFs, there has been a noticeable slowdown in the sector. The anticipated “second wave” of institutional money has yet to materialize, leading to muted activity in the ETF space. Instead, spot ETFs are currently experiencing a summer lull.
The enthusiasm surrounding the Bitcoin ETF hasn’t been able to counter the overwhelmingly negative market sentiment; however, its direct impact remains relatively compact. Leading on-chain analyst James “Checkmate” Check recently estimated that only 20% of spot volume is accounted for by spot ETFs, with the rest coming from customary spot markets. In recent weeks, long-term BTC holders have been selling their holdings in significant quantities, which has been a key driver of downward pressure on the market.
At the time of going to press, the BTC price was $54,434.
Featured image created with DALL E, chart from TradingView.com