Over the past four days, the price of bitcoin has plummeted by more than 15%, with a significant drop of 7.8% in the past 24 hours. From a high of almost $72,000 in early June, the price of btc has declined by almost 25%. Here are the key factors behind yesterday's dramatic price drop.
The impending distribution of 142,000 btc by the defunct cryptocurrency exchange Mt. Gox has created a great deal of anxiety in the market. This amount, which represents 0.68% of the total bitcoin supply, is scheduled to be distributed among the creditors of the platform, which ceased operations in 2014 due to a major cyber attack.
The distribution process has already seen large transfers, with 52,633 btc moved in the past few hours, suggesting that preparations are underway for a large-scale disbursement. Market observers and analysts are closely monitoring these movements, as the possibility of massive sales by these creditors could inject considerable volatility into the market.
The psychological impact of this distribution has presumably led to preemptive selling among bitcoin holders, further amplifying market nervousness.
The German government's decision to begin liquidating its bitcoin holdings has also had repercussions on the market, with transactions recorded on major exchanges such as Bitstamp, Coinbase and Kraken.
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Over the course of a fortnight, the government reduced its holdings from 50,000 btc to 42,274 btc. Market participants are understandably nervous that continued selling by a major holder such as a government could put downward pressure on prices.
#3 Massive long-term liquidations
The bitcoin market has seen a sharp increase in the liquidation of long positions, with a record $212 million worth of btc liquidated in the past 48 hours alone. This liquidation is the most significant since April 13, when $261 million worth of btc long positions were liquidated, leading to a sharp drop in the bitcoin price from $68,500 to $61,600.
These liquidations often trigger a chain reaction leading to forced selling and further price declines. These liquidations are indicative of a highly leveraged market where investors may be overexposed, contributing to increased market volatility.
Following the bitcoin halving on April 20, 2024, the mining reward was cut in half from 6.25 to 3.125 btc, increasing economic pressures on miners. This reward reduction was expected to increase the price of bitcoin, but the increase failed to materialize, leaving miners with diminishing returns.
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The current capitulation among miners is similar to previous market lows, such as the one seen after the collapse of FTX, CryptoQuant researchers recently revealed. Indicators of miner distress, including a significant 7.7% drop in hash rate and a plummeting drop in mining revenue per hash to near-historic lows, means that many miners were forced to shut down their equipment and sell btc stock.
Contrary to expectations of a buoyant market driven by institutional investments via bitcoin spot ETFs, there has been a noticeable slowdown in this sector. The anticipated “second wave” of institutional money has not materialized so far, leading to subdued activity in the ETF space. Instead, spot ETFs are currently experiencing a summer lull.
The hype surrounding bitcoin ETFs has failed to counteract the overwhelmingly negative market sentiment; however, its direct impact remains relatively minor. Prominent on-chain analyst James “Checkmate” Check recently x.com/_Checkmatey_/status/1808671636427588077″ target=”_blank” rel=”nofollow”>My dear that only 20% of spot volume is attributable to spot ETFs, with the remainder coming from traditional spot markets. Over the past few weeks, long-term btc holders have been selling their holdings in significant amounts, which has been the primary driver of the downward pressure in the market.
At the time of writing, btc was trading at $54,434.
