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Germans, Mt. Gox, or Feds: Who Caused the Bitcoin Dip?

source-logo  financemagnates.com 08 July 2024 12:00, UTC

The dollar value of Bitcoin remains extremely volatile. Although there were signs of recovery over the weekend, the value tumbled this morning (Monday) as the Asian markets opened. What is the cause of this dip? Is it due to the expected repayment from Mt. Gox or the Germans offloading their Bitcoin stash? Additionally, the US Feds’ decisions on rate cuts cannot be ignored.

A Bloody Week

Bitcoin peaked at almost $74,000 earlier this year, boosted by the approval of the long-awaited spot Bitcoin exchange-traded funds (ETFs) in the United States. However, due to periodic volatility, the cryptocurrency is trading around $57,500, down by around 23 percent.

In the past week alone, the value of Bitcoin has decreased by about 10 percent.

As always, the reasons behind Bitcoin's volatility are mixed. However, this time, the bearish sentiments might have been triggered by a few events.

Bitcoin price movement in the past 1 month
Bitcoin price movement in the past 1 month

A $9 Billion Payout

A prominent trigger might be the upcoming repayment to the creditors of the now-defunct crypto exchange Mt. Gox. After ten years of countless delays, the Mt. Gox administrator finally decided to repay the distressed creditors in Bitcoin and Bitcoin Cash.

At its peak, Mt. Gox handled 70 percent of all Bitcoin transactions. However, the exchange lost an estimated 740,000 Bitcoin, which led to its closure in 2014.

Recently, Mt. Gox-related Bitcoin wallets moved 47,228 Bitcoins. However, it was unclear if those Bitcoins were moved for the purpose of repayment. The anticipation of such a massive volume of Bitcoin hitting the market might have created selling pressure, resulting in the recent volatility.

The Mt. Gox payout is estimated to be $9 billion. However, experts believe that the $1.1 trillion Bitcoin market has the potential to absorb the pressure from the sell-off by the Mt. Gox creditors.

#Bitcoin This is the MTGOX official announcement. "We ask eligible rehabilitation creditors to wait for a while." This is similar language to that issued during the decade creditors have waited so far. I can see most people being happy with more delays. Especially non creditors. pic.twitter.com/6sTcbTNaXY

— Richard Heart (@RichardHeartWin) July 6, 2024

“Mt. Gox moved [a massive amount of] BTC, signalling the start of their repayment process, which has caused some market fear due to the large potential sell-off,” Willy Chuang, COO of crypto exchange WOO X, told crypto-focused publication Coindesk. “However, it's worth noting that despite these concerns, the long-term impact may be less severe as the market gradually absorbs the selling pressure.”

The German Sell-Off

Another major reason for the latest downward Bitcoin spiral might be the selling off of seized Bitcoins by German authorities. Earlier this year, German law enforcement seized 50,000 Bitcoins linked with a piracy website.

After months of holding onto those seized cryptocurrencies, the German government-linked wallets moved out 6,500 Bitcoins, worth about $425 million at the time. After a series of transactions, 1,000 of these Bitcoins were sent to two crypto exchanges, Kraken and Bitstamp. On-chain analyst Arkham also confirmed that the German government moved another 1,300 Bitcoins, worth $76 million, to Kraken, Bitstamp, and Coinbase on July 4, after which the Bitcoin price took a massive hit.

The German government also moved an additional 1,700 Bitcoins to an address likely moved “for an institutional service or OTC.”

UPDATE: German Government selling up to $175M BTC

In the past 2 hours the German Government has moved 1300 BTC ($76M) to exchange deposits at Kraken, Bitstamp and Coinbase.

They have also moved 1700 BTC ($99M) to address 139Po. These funds are likely moving to a deposit for an… pic.twitter.com/ZMTxoipo5d

— Arkham (@ArkhamIntel) July 4, 2024

Despite the sell-offs, the German government still holds a substantial amount of Bitcoins from the seizure. Similarly, the US government accumulated a sizable amount of Bitcoin from seizures against illegal operations over the years.

Is It the Feds?

Although a regular event, the US Federal Reserve’s decision might be another factor behind Bitcoin’s volatility. On Thursday, the Feds decided not to cut interest rates for another cycle. Even though rate cuts are not directly related to Bitcoin, higher interest rates always lure investors to keep their money away from risky investments like Bitcoin.

Currently, the Fed funds rate is at 5.5 percent, significantly higher compared to 0.25 percent in March 2022.

The US interest rate over the past 5 years
The US interest rate over the past 5 years

Room for Upward Movement

Bitcoin entered the mainstream financial market earlier this year when the Securities and Exchange Commission approved the spot Bitcoin ETFs. Prominent asset managers like BlackRock and Fidelity, along with nine other issuers, are now listing spot Bitcoin ETFs on American stock exchanges.

Further, the mining reward of Bitcoin was halved earlier this year, an event that has positively impacted the cryptocurrency's price movement historically.

Despite the recent volatility, many analysts are still optimistic about Bitcoin. According to analysts at crypto data and research firm CCData, Bitcoin is yet to reach the top of its current appreciation cycle and is likely to hit a fresh all-time high.

CCData pointed out that Bitcoin halvings always preceded a period of price expansion, which lasts between 12 to 18 months “before producing a cycle top.” These historical time frames have yet to pass after the latest halving on 19 April 2024.

“Moreover, we have observed a decline in trading activity on centralised exchanges for nearly two months following the halving event in previous cycles, which seems to have mirrored this cycle. This suggests that the current cycle could expand further into 2025,” the CCData report stated.