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What is the cause of the fall in the price of Bitcoin?
What is the cause of the fall in the price of Bitcoin?
The market is red again.
Over the past week, Bitcoin lost almost $5,000 of its value, falling from a comfortable level above $66,000 to hovering around the $61,000 mark (at the time of writing). This sudden drop has left investors and analysts confused.
This sharp decline coincided with a significant change in market sentiment. THE Crypto Fear and Greed Index 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 about the underlying causes.
Several key events in the crypto space appear to have influenced this market movement.
Let’s dive into the details of what’s happening in the Bitcoin market and explore the factors behind this recent drop.
Reason #1: The German government’s sale of Bitcoin
Crypto market saw significant turbulence following German government announcement preparing to liquidate a significant holding in Bitcoin.
Germany’s Federal Criminal Police Office (BKA) held around 50,000 BTC, seized from a hacking site in 2013, now valued at more than $3 billion.
This news, revealed a few days ago, likely triggered Bitcoin’s initial decline from $66,000 to $63,000 – as can be seen on CoinMarketCap.
The prospect that such an amount of Bitcoin could enter the market has understandably caused concern among investors.
Reports suggest that German authorities have already started the process, selling 3,000 BTC in recent days. However, most of the heritage (47,000 BTC) remains for sale.
The government appears to be taking a measured approach to minimize the impact on the market, but investor concern persists.
Reason n°2: the big players are slowing down
The second major factor behind the recent Bitcoin price decline concerns the biggest fish in the market – “whales”.
Here’s what’s happening: The whales have suddenly become much less active. Data from Feeling shows that large transactions (over $100,000) fell by 42% in just a few days. This is a significant behavioral change.
So why is this important? Well, when whales slow down their trade, it often signals caution. This whale behavior is particularly interesting because it occurs right after a period of strong sales.
What does this mean for the market? It could be that these large investors are waiting to see if prices will fall further before starting to buy again. Or they could refrain from selling more to avoid driving prices down too quickly.
Either way, when the whales go silent, it’s often a sign that the market is at a crossroads. Their next movements could give us clues about the direction that the price of Bitcoin could take in the weeks to come.
The story continues
Reason #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 announced that it would begin repaying its creditors – and the news reverberated through the Bitcoin market.
Mt. Gox Rehabilitation Administrator Nobuaki Kobayashi announced that Bitcoin and Bitcoin Cash reimbursements would begin in early July.
Why is this a big deal?
Well, Mt. Gox was once the largest crypto exchange before its spectacular shutdown in 2014.
This is not a small change we are talking about. The three Mt. Gox wallets combined hold 141,686 BTC, worth approximately $8.71 billion.
The fear is simple: As creditors finally get their hands on their long-lost Bitcoin, many may rush to cash out. This potential flood of Bitcoin hitting the market has investors on alert.
The impact was almost immediate. Bitcoin price plunged to $61,060, a 6.5% drop in just 24 hours. Although 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) was also hit, falling 9% following the announcement.
Although the reimbursement process is expected to begin soon, it should be noted that it could extend over several months. The repayment deadline had previously been extended until October 2024, which gave the market some breathing space.
Reason #4: domino effect
The recent drop in Bitcoin price was not solely due to external factors. An important internal market mechanism played a crucial role in amplifying this decline: cascading liquidations in the derivatives market.
Think of it as crypto’s version of a domino effect, and it’s in full swing over the past 24 hours.
Here’s what happened: When the price of Bitcoin started to fall, it started a chain reaction in the derivatives market. According to data from Change machine$311.3 million in crypto positions were liquidated in just 24 hours.
Of this $305.89 million, $275.75 million were long positions. In short, this means that the vast majority of these liquidations affected traders who were betting on an increase in the price of the crypto.
This cascade of liquidations isn’t the root cause of Bitcoin’s price decline, but it certainly hasn’t helped matters.
As the market grapples with these issues, it is clear that several factors are at 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 destabilizing, they also provide valuable information about market dynamics. As the dust settles, market participants will be closely watching how these factors evolve and influence Bitcoin’s trajectory in the weeks and months to come.