Bitcoin’s recent decline has left many investors scratching their heads, wondering where the downward pressure is coming from. The answer lies in a confluence of factors, including significant sales anticipated in the coming months. One major contributor is the German Federal Criminal Police Office, which recently transferred a portion of the 50,000 bitcoins confiscated in a 2013 criminal case to the Coinbase exchange. According to Arkham data, nearly 500 million euros worth of Bitcoin have been moved since June 19, signaling potential liquidation plans by the German government. This move has already caused Bitcoin to briefly dip below the $60,000 mark, raising concerns about further downward pressure.
Germany Shoots Itself in the Foot Again
The German Federal Criminal Police Office's recent actions have sent ripples through the cryptocurrency market. By transferring a significant portion of the 50,000 bitcoins confiscated in a 2013 criminal case to the Coinbase exchange, the German government has inadvertently signaled potential liquidation plans. According to Arkham data, nearly 500 million euros worth of Bitcoin have been moved in several transactions since June 19. This has led to speculation that the German government might liquidate some of its Bitcoin holdings, causing the cryptocurrency to briefly fall below the $60,000 mark.
The German government’s wallet still contains more than 46,000 bitcoins, worth nearly 3 billion dollars. This is not a trivial amount, especially when considering that it took nearly 15 billion dollars for US ETFs to push Bitcoin to $70,000. Speaking of ETFs, net cumulative flows have turned negative since June 10, indicating that even "sophisticated" investors are wary of potential downward pressure in the coming months.
The Fear, Uncertainty, and Doubt (FUD) could persist if the German government continues to transfer bitcoins from its wallet to exchanges like Coinbase, Kraken, and Bitstamp. For instance, on June 26, 2024, the German government transferred an additional 750 BTC: 500 BTC to Coinbase, 125 BTC to Kraken, and 125 BTC to Bitstamp.
The Mt. Gox Saga Continues
Another significant factor contributing to Bitcoin's downward pressure is the long-standing Mt. Gox saga. More than a decade after the infamous hack, the Japanese justice system is finally set to reimburse Mt. Gox customers who lost nearly 950,000 bitcoins in 2014. Only 141,868 bitcoins will soon be returned to nearly 20,000 creditors, equivalent to about 9 billion dollars. This is more than half of the 15 billion dollars absorbed by ETFs since their launch.
The Mt. Gox bankruptcy proceedings offer creditors three options: 1. Receive a payment of about 90% now in bitcoins. 2. Potentially wait another 3 to 5 years to receive the full amount. 3. Receive their payment in cash without a discount, but with an unknown additional delay.
Galaxy Research estimates that 75% of the reimbursements will be "in-kind," meaning directly in bitcoins. While the market expects a downward pressure of 141,868 BTC, Galaxy Research predicts the actual amount will be significantly lower. Around 65,000 BTC should be delivered to individual creditors, and 30,000 BTC to claim funds and a separate bankruptcy. It can be reasonably assumed that most of the BTC received by the funds that acquired claims from creditors will be distributed in-kind and therefore will not be sold.
Moreover, the 20,000 creditors of the 65,000 BTC pool are early investors who have likely had time to recover. It is plausible that a large majority of these creditors will keep their bitcoins. These bitcoiners have resisted for more than 10 years against convincing and aggressive offers from debt buyers, suggesting that they prefer to recover bitcoins rather than fiat currency. Additionally, the tax consequences on capital gains could further discourage any sale.
Bitcoin Miners Secure Their Backs
Bitcoin miners have also contributed to the downward pressure by selling more than 30,000 BTC since the beginning of June, amounting to about 2 billion dollars. This is the highest amount sold this year. According to IntoTheBlock data, the amount of bitcoins held by miners has fallen to its lowest level in over 14 years. On June 19, miners’ reserves fell to 1.9 million bitcoins, down from 1.95 million BTC at the beginning of the year.
It appears that miners have learned from past cycles. The era of over-indebtedness and holding too many bitcoins is over. Many miners are selling some of their reserves at the peak as a precaution. The recent Bitcoin halving and increased competition have decreased the amount of bitcoins produced per terahash (TH), increasing production costs. The hashprice is now at approximately $0.05 per TH per day, approaching its historical low of $0.044 per TH per day.
Monitoring miners’ reserves closely will be crucial. An increase in reserves will coincide with a relaxation of the downward pressure that has been in place since early June.
The Broader Market Sentiment
The broader market sentiment also plays a significant role in Bitcoin's price movements. The Fear and Greed Index, which measures market sentiment, has shifted from "greed" to "neutral" territory after three straight months of exuberance. This shift comes on the heels of a surprise Bitcoin sell-off, sparking a broader crypto market decline. The tumble occurred right after the launch of the hotly anticipated spot BTC ETFs in the US, a development many expected would boost prices.
Investors cashed out heavily from Grayscale's GBTC after it converted to an ETF structure. Some indicate that FTX sold close to $1 billion worth of GBTC, contributing significantly to the outflows. This flood of selling pressure from formerly locked-up GBTC holdings is largely tanking Bitcoin's price.
Federal Reserve Policies and Crypto Markets
The US Federal Reserve's policy decisions also have a significant impact on the cryptocurrency market. The Fed's announcement to defer its quantitative tightening to a future meeting implies a possible start to a monetary expansion cycle in May, with balance sheet reduction beginning in June. This raises the prospect of a "soft landing" for the US economy, as indicators suggest the economy is managing inflation and maintaining growth. The Fed’s preferred inflation gauge, core PCE, aligns closely with their annual 2% target, adding to the evidence of economic resilience.
These insights align with an optimistic outlook for cryptocurrency markets. As technical pressures dissipate and the Fed’s strategies unfold, the stage is set for an intriguing period in the crypto space, which many investors and industry observers are watching closely.
Conclusion
The downward pressure on Bitcoin is the result of a combination of factors, including significant sales anticipated from the German government, the ongoing Mt. Gox saga, and Bitcoin miners securing their backs by selling off their reserves. Additionally, broader market sentiment and Federal Reserve policies play crucial roles in influencing Bitcoin's price movements.
As the market navigates these challenges, it is essential for investors to stay informed and monitor key developments closely. The cryptocurrency market is inherently volatile, and understanding the underlying factors driving price movements can help investors make more informed decisions. Whether the current downward pressure will persist or give way to a more favorable trend remains to be seen, but one thing is certain: the world of Bitcoin
