Bitcoin
Why is Bitcoin down today?
Why is Bitcoin down today?
The market is all red once again.
Last week, Bitcoin has lost almost $5,000 of its value, plummeting from a comfortable position above $66,000 to hovering around the $61,000 mark (at the time of writing). This sudden drop left investors and analysts confused.
This sharp drop coincided with a significant change in market sentiment. O Crypto Fear and Greed Index dropped from 60 to 49 in just 13 days, moving 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 important events in crypto appear to have influenced this market movement.
Let’s jump into the details of what’s happening in the Bitcoin market and explore the factors behind this recent drop.
Reason #1: Selling Bitcoin by the German Government
The crypto market has experienced significant turbulence following the news that the German government is preparing to liquidate a substantial stake in Bitcoin.
The German Federal Criminal Police (BKA) held approximately 50,000 BTC, seized from a piracy website 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 seen on CoinMarketCap.
The prospect of such a large amount of Bitcoin potentially entering the market has caused concern among investors.
Reports suggest that German authorities have already begun the process, selling around 3,000 BTC in the last few days. However, the majority of the stake – 47,000 BTC – has not yet been sold.
The government appears to be taking a measured approach to minimize the impact on the market, but investor anxiety persists.
Reason #2: Big players slamming on the brakes
The second main factor behind the recent drop in Bitcoin prices involves the biggest fish in the market – “whales”.
Here’s what’s happening: whales have suddenly become much less active. Data from Sanction shows that large transactions (over $100,000) dropped by 42% in just a few days. This is a significant change in behavior.
So why does this matter? Well, when whales slow down their trading, it often signals caution. This whale behavior is especially interesting because it occurs right after a period of intense selling.
What does this mean for the market? It could be that these big investors are waiting to see if prices will fall further before they start buying again. Or they may be holding off on selling more to keep prices from falling too quickly.
Either way, when whales go quiet, it’s often a sign that the market is at a crossroads. Its next moves could give us clues about the direction of Bitcoin’s price in the coming weeks.
The story continues
Reason #3: Mt. Gox returns with refunds
The defunct exchange resurfaced and shook things up once again. More than a decade after its collapse, Mt. Gox announced that it will begin repaying its creditors – and the news sent ripples through the Bitcoin market.
Mount Gox Rehabilitation Trustee Nobuaki Kobayashi announced that Bitcoin and Bitcoin Cash payments will begin in early July.
Why is that so important?
Well, Mt. Gox was once the largest crypto exchange before its dramatic closure in 2014.
We’re not talking about small change. The three Mt. Gox wallets combined hold 141,686 BTC, worth approximately US$8.71 billion.
The fear is simple: As creditors finally get their hands on your long-lost Bitcoin, many may rush to cash out. This potential flood of Bitcoin hitting the market is making investors nervous.
The impact was almost immediate. Bitcoin price plummeted to $61,060, marking a 6.5% drop in just 24 hours. Although it has recovered slightly to around $61,300, the market remains nervous.
It’s not just Bitcoin that’s feeling the heat. Bitcoin Cash (BCH) also took a hit, dropping 9% following the announcement.
Although the refund process is expected to begin soon, it is important to note that it could extend for several months. The repayment deadline was previously extended until October 2024, giving the market some room for maneuver.
Reason #4: Domino Effect
The recent drop in Bitcoin’s price was not just due to external factors. A significant internal market mechanism played a crucial role in amplifying the decline: waterfall settlements in the derivatives market.
Think of it as the crypto world’s version of the domino effect, and it’s been in full swing over the past 24 hours.
Here’s what happened: When the price of Bitcoin started falling, it set off a chain reaction in the derivatives market. According to data from Currency Currency$311.3 million worth of cryptocurrency positions were liquidated in just 24 hours.
Of that $305.89 million, $275.75 million were long positions. In simple language, this means that the vast majority of these liquidations hit traders who were betting on the crypto price rising.
This cascade of liquidations is not the root cause of Bitcoin’s price drop, but it certainly hasn’t helped matters.
As the market navigates these questions, it is clear that several factors are at play. The German government’s Bitcoin moves, changes in whale behavior, Mt. Gox repayment plans, and cascading liquidations have contributed to recent price volatility.
While short-term fluctuations can be disruptive, 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 coming weeks and months.