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What is causing the price of Bitcoin to drop?
What is causing the price of Bitcoin to drop?
The market is once again completely red.
Over the past week, Bitcoin has lost nearly $5,000 from its value, plummeting from a comfortable perch above $66,000 to hover around the $61,000 mark (as of this writing). This sudden collapse has left investors and analysts confused.
This sharp decline coincided with a significant change in market sentiment. THE Cryptocurrency Fear and Greed Index they went from 60 to 49 in just 13 days, going from “Greed” to the edge of “Neutral” territory.
The sudden drop in prices and change in sentiment has left many wondering what the underlying causes are.
Several key events in the cryptocurrency industry appear to have influenced this market movement.
Let’s get into the details of what is happening in the Bitcoin market and explore the factors behind this recent collapse.
Reason no. 1: German government selling Bitcoin
The cryptocurrency market has undergone considerable turbulence following the news communicated by the German government is preparing to liquidate a substantial stake in Bitcoin.
The German Federal Criminal Police Office (BKA) held around 50,000 BTC, seized from a piracy site in 2013, now valued at over $3 billion.
This news, which came to light a few days ago, likely triggered Bitcoin’s initial drop from $66,000 to $63,000, as can be seen on CoinMarketCap.
The prospect of such a large amount of Bitcoin entering the market has understandably caused concern among investors.
Reports suggest that German authorities have already started the process, selling around 3,000 BTC in the last few days. However, the majority of the stake, i.e. 47,000 BTC, has yet to be sold.
The government appears to be taking a measured approach to minimize the impact on the market, but investor anxiety persists.
Reason no. 2: the big players slow down
The second major factor behind the recent decline in Bitcoin prices concerns the biggest fish in the market: the “whales”.
Here’s what’s happening: Whales have suddenly become much less active. Data from Most Holy shows that large transactions (over $100,000) dropped by 42% in just a couple of days. This is a significant change in behavior.
So why does it matter? Well, when whales slow down their trade, it’s often a sign of caution. This behavior of the whales is particularly interesting as it occurs immediately after a period of strong selling.
What does this mean for the market? It may be that these large investors are waiting to see if prices will fall further before they start buying again. Or they might hold back from selling more to avoid lowering prices too quickly.
In any case, when whales calm down, it is often a sign that the market is at a crossroads. Their next moves could give us clues as to where the price of Bitcoin might head in the coming weeks.
The story continues
Reason no. 3: Mt. Gox returns with refunds
The defunct exchange has resurfaced and shaken things up once again. More than a decade after its collapse, Mt. Gox has announced that it will begin paying back its creditors – and the news has sent ripples through the Bitcoin market.
Mt. Gox Rehabilitation Trustee Nobuaki Kobayashi announced that Bitcoin and Bitcoin Cash refunds will begin in early July.
Why is this a big deal?
Well, Mt. Gox was once the largest cryptocurrency exchange before its dramatic closure in 2014.
We are not talking about a small change. The three Mt. Gox wallets combined contain 141,686 BTC, an approximate value $8.71 billion.
The fear is simple: When creditors finally get their hands on their long-lost Bitcoin, many may rush to cash out. This potential wave of Bitcoin hitting the market has investors on edge.
The impact was almost immediate. The price of Bitcoin collapsed to $61,060, marking a drop of 6.5% in just 24 hours. While it has since recovered slightly to around $61,300, the market remains nervous.
It’s not just Bitcoin that’s feeling the heat. Bitcoin Cash (BCH) also fell, losing 9% following the announcement.
While the refund process will begin soon, it’s worth noting that it could take several months. The repayment deadline was previously extended to October 2024, giving the market some breathing room.
Reason no. 4: domino effect
The recent decline in the price of Bitcoin is not only due to external factors. A significant internal market mechanism played a crucial role in amplifying the decline: cascade liquidations in the derivatives market.
Think of it as the cryptocurrency world’s version of a domino effect, and it’s been in full swing over the last 24 hours.
Here’s what happened: When the price of Bitcoin started to drop, it set off a chain reaction in the derivatives market. According to data from Coinglassin just 24 hours, cryptocurrency positions worth $311.3 million were liquidated.
Of this $305.89 million, $275.75 million were long positions. Simply put, this means that the vast majority of these liquidations affected traders who were betting on the price of cryptocurrencies rising.
This cascade of liquidations is not the main cause of Bitcoin’s price decline, but it certainly hasn’t helped matters.
As the market addresses these issues, it is clear that multiple factors are coming into play. The German government’s Bitcoin moves, changes in whale behavior, Mt. Gox redemption plans, and cascading liquidations have all contributed to recent price volatility.
While short-term fluctuations can be unsettling, they also provide valuable insights into market dynamics. As the dust settles, market participants will be carefully watching how these factors evolve and influence Bitcoin’s trajectory in the coming weeks and months.