Markets
Cryptocurrency ‘Trump Trade’ on Hold as Other Factors Captivate Market
(Bloomberg) — President Joe Biden’s poor performance in a debate last week bolstered the prospects of his crypto-friendly opponent Donald Trump returning to the White House.
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So why is Bitcoin trading lower than it was before the debate? And why are smaller so-called altcoins faring even worse? Traders say the market is being led by other catalysts at the moment, including the expected sale of Bitcoin being released from the estate of failed exchange Mt. Gox and “unlocks,” or distributions of additional tokens issued by smaller digital currencies.
“There is no escaping the fundamental laws of supply and demand,” said Spencer Hallarn, global head of OTC trading at GSR. “Between the widely anticipated Bitcoin distributions set to begin from the Mt. Gox bankruptcy estate and the series of sizable token unlocks scheduled for the coming weeks and months, the wave of new supply facing the cryptocurrency market has served as a substantial drag on prices.”
Bitcoin fell for a second day and traded near more than a month lows. The largest cryptocurrency fell as much as 3.7% to $59,623, just below levels last seen in May.
“The market continues to face oversupply in a period of seasonally low liquidity and low volatility,” said Shiliang Tang, president of leading trading firm Arbelos Markets. “With the German government/Silk Road/Mt Gox Bitcoin oversupply coupled with continued monthly unlocks in risky coins, there are not enough new capital inflows to absorb this.”
Since Bitcoin’s price peaked in March, the market cap of altcoins other than Ether or stablecoins has dropped significantly. In the early days of crypto, all tokens other than Bitcoin were nicknamed because they were an alternative to the original digital currency, which still commands over 50% of the estimated $2.4 trillion digital asset market.
A portion of many projects’ tokens are being unlocked this year, which essentially means that venture capitalists and founders can finally sell the digital assets they received years ago in exchange for investment or labor contributions. With the crypto market recovering from the crypto winter, or prolonged price decline, of two years ago, the recovery makes now an attractive time to sell for many long-term investors. Of the 138 tokens that researcher TokenUnlocks tracks, 120 have unlocked this year, with a combined market valued at about $58 billion as of last month.
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Low volatility in Bitcoin and Ether has made life difficult for altcoins, which typically benefit from moving markets. At a time when nearly all altcoin sectors were down, GameFi tokens took a “significant hit” while AI tokens remained stagnant, according to David Zimmerman, DeFi analyst at K33. This was despite a spike in new token launches, averaging 250,000 new coins each month in Q2 on Ethereum and major Ethereum-based layer-two chains.
“As the majors continue to chop and pull back a bit during this ‘low volatility summer,’ altcoin markets have been hit relatively hard,” Zimmerman said in a note Wednesday. Memecoins were a notable exception, growing to a collective market cap of $50 billion. Tokens focused on the U.S. political race and celebrities were the biggest movers.
A measure that tracks the total market capitalization of cryptocurrencies without Bitcoin and Ether fell nearly 22% in the second quarter, “indicating that the beta altcoin is doing exactly what it was designed to do, outperforming — only it’s to the downside in this case,” Zimmerman said.
–With assistance from Olga Kharif and Benjamin Taubman.
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