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The cryptocurrency market experienced a dramatic downturn recently,, with over $170 billion in market capitalization vanishing within 24 hours. The catalyst for this market turmoil was the imminent payout of nearly $9 billion to creditors of the defunct bitcoin exchange, Mt. Gox. The repercussions of this event rippled through the crypto world, causing significant declines in major cryptocurrencies.
Bitcoin, the world’s largest cryptocurrency, saw its price drop nearly 3% to $56,571.00, marking its first dip below the $55,000 level since February. Earlier in the day, Bitcoin had plummeted to a low of $53,513.55. Similarly, Ethereum, the second-largest cryptocurrency, fell around 5% to $2,971.68. The combined market capitalization of cryptocurrencies shrank by more than $170 billion, according to CoinGecko data.
Estate Repayments Begin
Nobuaki Kobayashi, the trustee for the Mt. Gox bankruptcy estate, announced that repayments in Bitcoin and Bitcoin Cash had commenced, with some creditors receiving their funds through designated crypto exchanges. Kobayashi did not disclose the total amount transferred but stated that the remaining funds would be distributed once several conditions are met, including the validation of registered accounts and finalizing agreements with the exchanges.
In a statement, Kobayashi emphasized the importance of ensuring repayments are conducted securely, urging eligible creditors to be patient. This announcement followed the movement of a small amount of Bitcoin from wallets linked to Mt. Gox, including a $24 transfer to the Japanese exchange Bitbank, one of the designated recipients for repayments.
The market’s reaction to the Mt. Gox payouts stems from fears of a massive sell-off by creditors. Analysts predict that a significant portion of the $9 billion worth of Bitcoin being distributed could be sold, adding substantial selling pressure to the market. Jacob King, a finance analyst, noted that on-chain movements indicate creditors have already started selling their Bitcoin.
Mt. Gox Redemptions have started repaying customers with their #Bitcoin after over a decade! Immediately after this begun, on-chain data showed a hefty increase in selling volume from these wallets.
— Jacob King (@JacobKinge) July 4, 2024
No Bitcoiner will say this out loud, but the majority of the $8.2 Billion in… pic.twitter.com/VWcxBc43Sk
King’s analysis suggests that up to 99% of the Mt. Gox creditors might sell their Bitcoin to lock in profits, given that the cryptocurrency has surged over 8,500% in value since the exchange’s collapse a decade ago. This potential influx of Bitcoin into the market could drive prices down further, exacerbating the current market downturn.
Impact on Derivatives Markets
The slump in cryptocurrency prices triggered significant liquidations in the derivatives markets. According to Coinglass, 229,755 traders had their positions liquidated, amounting to a combined $639.58 million. Of this, $540.46 million were long trades, indicating that many investors had expected prices to rise.
Additionally, the German government’s sale of approximately 3,000 bitcoins, worth about $175 million, added to the downward pressure. These bitcoins were part of a
Despite the current market turbulence, some industry insiders remain optimistic about the long-term prospects of Bitcoin. Analysts from CCData highlighted that Bitcoin has not yet reached the peak of its current appreciation cycle. They pointed out that Bitcoin’s historical market cycles show significant price expansion following the halving events, which reduce the supply of new bitcoins. The latest halving occurred in April this year, suggesting potential for further growth into 2025.
Tom Lee, co-founder and head of research at Fundstrat Global Advisors, echoed this optimism. He believes Bitcoin could rebound sharply in the second half of the year once the selling pressure from Mt. Gox repayments subsides. Lee predicts that Bitcoin could reach $150,000, despite the current market challenges.
Potential Regulatory Developments
Regulatory changes could also play a significant role in the future of the cryptocurrency market. Investors are closely watching the potential launch of an ether exchange-traded fund (ETF) in the U.S., following the approval of the first U.S. spot bitcoin ETF earlier this year. Companies like VanEck, BlackRock, Bitwise, and Galaxy Digital are among those seeking to introduce their own ether ETFs, which could attract new investors and drive prices higher.
The cryptocurrency market is currently experiencing significant volatility due to the Mt. Gox payouts. While the immediate outlook appears bleak with potential for further declines, especially if large amounts of Bitcoin are sold, there is cautious optimism for a recovery later in the year. Historical trends and potential regulatory developments provide a glimmer of hope for investors amid the current uncertainty.