Markets
Cryptocurrency’s ‘Trump Trade’ Is On Hold As Other Factors Capture Market
(Bloomberg) — President Joe Biden’s poor performance in last week’s debate has boosted the prospects of Donald Trump, his cryptocurrency-friendly opponent, returning to the White House.
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So why is Bitcoin actually trading lower than it was before the debate? And why are smaller so-called altcoins doing even worse? Traders say the market is being driven by other catalysts at the moment, including the expected sale of Bitcoin that will be released from the estate of the bankrupt Mt. Gox exchange 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 starting from the Mt. Gox bankruptcy estate and the series of large token unlocks scheduled for the coming weeks and months, the wave of new supply entering the cryptocurrency market has been a substantial drag on prices.”
Bitcoin fell for a second day, settling near its lowest levels in more than a month. 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 low liquidity and low seasonal volatility,” said Shiliang Tang, president of major trading firm Arbelos Markets. “With the German government/Silk Road/Mt Gox oversupply of Bitcoin, coupled with ongoing monthly unlocks of risk coins, there are not enough new capital inflows to absorb it.”
Since the price of Bitcoin peaked in March, the market capitalization of altcoins other than Ether or stablecoins has declined significantly. In the early days of cryptocurrency, all tokens other than Bitcoin were given this moniker because they were an alternative to the original digital currency, which still holds more than 50% of the estimated $2.4 trillion digital asset market.
Many projects are set to unlock a portion of their tokens this year, essentially meaning venture capitalists and founders can finally sell the digital assets they received years ago in exchange for investments or labor contributions. With the cryptocurrency market recovering from the crypto winter, or prolonged price decline, two years ago, the recovery makes this an attractive time to sell for many long-term investors. Of the 138 tokens that researcher TokenUnlocks tracks, 120 have unlocked this year, with the combined market valued at about $58 billion as of last month.
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Bitcoin and Ether’s low volatility has made life tough for altcoins, which typically benefit from moving markets. During a period when nearly all altcoin sectors have been down, GameFi tokens have taken a “significant hit” while AI tokens have stagnated, according to David Zimmerman, a DeFi analyst at K33. That’s despite a spike in new token launches, with an average of 250,000 new coins each month in Q2 on Ethereum and major Ethereum-based layer-two chains.
“As the majors continue to trim and pull back a bit during this ‘summer of low volatility,’ altcoin markets have been hit pretty hard,” Zimmerman said in a note Wednesday. Memecoins have been a notable exception, growing to a collective market cap of $50 billion. Tokens centered around U.S. political race and celebrities have been the main movers.
A measure that tracks the total cryptocurrency market capitalization excluding Bitcoin and Ether fell nearly 22% in the second quarter, “indicating that the beta altcoin is doing exactly what it was designed to do, which is outperform, only in this case to the downside,” Zimmerman said.
–With the collaboration of Olga Kharif and Benjamin Taubman.
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