Why Bitcoin Price is Falling

The price of Bitcoin fell sharply on Friday, extending a recent decline as investors grew worried about a potential flood of tokens being sold by defunct crypto exchange Mt Gox.

Mt Gox sell-off

The situation with Mt. Gox is a major factor weighing heavily on the Bitcoin price.

• Mt. Gox was once the world's leading Bitcoin exchange, handling a significant portion of all Bitcoin transactions.
• However, in 2014, Mt. Gox suffered a massive hack, losing around 850,000 Bitcoins (which at the time represented a huge chunk of all Bitcoins in circulation).
• This hack led to Mt. Gox filing for bankruptcy.

After years of legal battles and complexities, Mt. Gox is finally planning to return the stolen Bitcoins to its creditors starting in July 2024.

Bitcoin Sell-Off Fear

The concern is that many of these creditors received their Bitcoin at a much lower price than it is today. Bitcoin's value has skyrocketed over the past decade. Investors fear that a significant number of these creditors will be tempted to sell their recovered Bitcoin to cash in on the massive price increase. This potential influx of a large amount of Bitcoin for sale could overwhelm existing buyers and drive the price down. Imagine a sudden surge of people selling the same type of rare collectible - the price would likely plummet due to oversupply.

The anticipation of this potential Mt. Gox sell-off is causing anxiety among investors, leading them to be more cautious and potentially sell their own Bitcoin holdings before the price drops further. This creates a negative feedback loop, where fear of a sell-off leads to actual selling, further pushing the price down.

German Police Crypto Sales

The news of German police transferring confiscated crypto to exchanges also spooked investors, raising fears of a large sell-off.

The German Federal Criminal Police Office (BKA) seized a large amount of Bitcoin (around 50,000) in 2013, believed to be from a shuttered piracy website. In June and July of 2024, the BKA began transferring this Bitcoin in stages to cryptocurrency exchanges like Coinbase, Kraken, and Bitstamp. The total value of these transfers is significant․

Investors suspect that the large influx of bitcoins into exchanges suggests that BKA may be selling the seized cryptocurrency. This potential sell-off by a major holder could drive down the price of Bitcoin, spooking investors and causing a market drop.

Though BKA hasn't officially confirmed whether they're selling the Bitcoin or just moving it for safekeeping. The impact on the market is unclear; it depends on how quickly the BKA sells and how the market reacts.

Some speculate the BKA might be trying to convert Bitcoin to traditional currency to fund operations.

Bitcoin Price and Low Trading Volumes

Bitcoin price plunged 8.5% in 24 hours, reaching its lowest level since March at $54,092.3. Over the past week, Bitcoin has fallen more than 11%.

Due to the July 4th US holiday also played a role in the price decline. The market's excitement over a potential Bitcoin exchange-traded fund (ETF) approval seems to be fading, further dampening investor sentiment.

Bitcoin ETF would allow investors to invest in Bitcoin without directly buying and holding the cryptocurrency itself. The approval of a Bitcoin ETF many see as a potential catalyst for wider institutional adoption of Bitcoin, which could drive prices up.

However, the process of getting a Bitcoin ETF approved by regulators has been slow and complex. With the lack of progress and delays, the initial excitement surrounding a potential Bitcoin ETF seems to be fading. This dampens investor sentiment because the anticipated boost to the market from an ETF isn't coming as quickly as some might have hoped.

Broader crypto market situation

The decline wasn't limited to Bitcoin. Other major cryptocurrencies also saw significant price drops. Ethereum (Ether) fell 10.5%, wiping out recent gains and reaching a nearly two-month low. XRP, Solana (SOL), and Cardano (ADA) all dropped between 7% and 17%. Meme tokens Shiba Inu (SHIB) and Dogecoin (DOGE) were hit particularly hard, each losing over 16%.

Other factors impacting crypto market

• Uncertainty surrounding the US presidential election and potential interest rate hikes are also contributing to the weak sentiment in the crypto market.
• The speculation that President Biden might not run for re-election and could be replaced by a more crypto-skeptic candidate is causing jitters.
• Upcoming US jobs data is keeping investors cautious, leading them to move away from riskier assets like crypto.
• Crypto markets are lagging behind a stock market rally, which they typically move in line with.

Bottom Line

The price of Bitcoin is falling due to a combination of factors, including the fear of a large sell-off from Mt Gox creditors, potential sales by German police of confiscated Bitcoin, and a general decline in investor confidence. The lack of progress on a Bitcoin ETF and broader uncertainty in the traditional financial markets are also contributing to the negative sentiment in the crypto market.