Is Bitcoins bullish momentum unaffected by the Mt Gox repayments trial and the German BTC selloff
Bitcoin underwent a significant downward correction over the past 24 hours, triggering apprehension within the market. Is there a chance that a potential short-squeeze scenario might reignite the bullish sentiments?
In June 2024, the infamous Bitcoin exchange Mt. Gox made a groundbreaking announcement that has the potential to shake up the cryptocurrency world. The platform, notorious for losing 850,000 BTC in a 2014 hack, is now planning to distribute the recovered assets to its creditors.
Nobuaki Kobayashi, the Rehabilitation Trustee, stated that repayments are scheduled to begin in early July. The plan involves distributing 142,000 BTC and Bitcoin Cash (BCH), valued at approximately $8.22 billion based on current market prices.
While the announcement brings long-awaited relief to the victims, it has also introduced a wave of uncertainty and potential volatility into the Bitcoin market.
To prepare for the upcoming repayments, Mt. Gox executed several test transactions on July 4, involving the transfer of small amounts of Bitcoin totaling around $25 across different wallets to ensure the system’s readiness.
Adding to the complexity of the situation is the significant activity from the German government. Over recent weeks, the German government has been consistently selling off BTC. Particularly, on July 4, 2024, they transferred millions worth of BTC, including $75 million to major crypto exchanges like Kraken, Coinbase, and Bitstamp. Such large transfers to exchanges often signal potential sell-offs, which can drive prices downwards.
As of now, the German government holds over 40,350 BTC, valued at over $2.3 billion, marking a 20% decrease from their holdings of over 50,000 BTC on June 19.
Against this backdrop, on July 4, Bitcoin plummeted to a low of $57,000, a sharp decline triggered by news of the impending Mt. Gox repayments and the actions of the German government.
Although it slightly rebounded to around $57,800, Bitcoin has dropped by almost 4% in the last 24 hours, slipping below its 200-day moving average for the first time since October 2023, heightening concerns among investors.
Let’s delve deeper into this unfolding narrative, exploring its implications for Bitcoin prices and potential future developments.
The Mt. Gox saga and the potential impact of liquidations
Mt. Gox, once the world’s largest Bitcoin exchange founded in 2010, quickly became a prominent platform for Bitcoin trading, handling approximately 70% of all Bitcoin transactions at its peak. However, a series of devastating hacks led to its downfall.
The first major hack occurred in 2011, resulting in the theft of 25,000 Bitcoins valued at around $400,000 at the time. This was just the beginning of Mt. Gox’s troubles.
In 2014, a catastrophic security breach resulted in the loss of nearly 650,000 Bitcoins belonging to customers and about 100,000 of the exchange’s own, amounting to approximately 7% of all Bitcoins in circulation and valued at about $473 million, with Bitcoin priced around $600 each.
Following the 2014 hack, Mt. Gox declared bankruptcy, leaving creditors owed 45 billion yen (around $414 million). Since then, creditors have been awaiting the repayment of their lost holdings, and it appears that their patience might finally pay off this month.
With the announcement of the redistribution of 142,000 BTC, the market is preparing for potential turbulence. The substantial influx of Bitcoin into the market could create significant selling pressure, driving prices down.
Furthermore, let’s analyze the potential impact of injecting $8.22 billion into the Bitcoin market. The current daily trading volume of Bitcoin stands at roughly $30 billion. Introducing $8.22 billion worth of Bitcoin into the market represents about 27% of the daily trading volume.
If this amount is quickly sold, it could potentially lead to a considerable decrease in Bitcoin prices, as historical data shows that sell-offs of even 10-15% of daily volume have resulted in 10-20% price drops.
Alternatively, if sold gradually over several months, the market might experience periodic 2-3% price corrections, which, while less destabilizing, could still impact overall market sentiment and contribute to a bearish trend.
What lies ahead?
Recent fluctuations in Bitcoin’s price have left investors anxious, pondering the market’s future direction.
Peter Schiff, a well-known Bitcoin critic and chairman of Schiff Gold, has heightened market anxiety by highlighting Bitcoin’s critical support level. He cautions that a breach of this support could lead to a significant drop. It’s worth noting that Schiff’s comments typically surface during market downturns, potentially amplifying panic and uncertainty among investors.
In contrast to Schiff’s pessimism, Michaël van de Poppe, a prominent crypto analyst, argues that the crypto cycle has not yet peaked. He believes that reports of the end of the crypto boom are exaggerated, suggesting potential for growth and the possibility of new market highs before a downturn.
Another crypto analyst points out that Bitcoin is currently trading within a specific range. While sentiment might be low, the fundamental market position of Bitcoin remains sound.
Additionally, Ali, a respected crypto analyst, mentions a crucial short-term trading pattern, highlighting how many Bitcoin traders have recently opted to short Bitcoin, resulting in significant short positions around the $59,600 mark. This setup forms a “liquidation wall,” meaning that if the price of Bitcoin begins to rise, these short positions may be compelled to buy back Bitcoin to cover losses, potentially leading to a rapid price surge.
The potential for a short squeeze scenario could result in sudden and substantial price spikes, contributing to near-term volatility and hinting at potential turbulence ahead.
As always, staying informed and prepared for both downturns and opportunities for growth is essential. Remember the golden rule: never invest more than you can afford to lose.
