Coin Circle News Report:
Last week, the cryptocurrency market experienced a strong sell-off, with Bitcoin plummeting from $60,000 to a low of $53,000, a decrease of 12%. This sell-off has shifted the trading atmosphere from consolidation to pervasive pessimism.
Ether suffered a worse situation compared to Bitcoin. The main reason is that long positions in Ether spot ET contracts were forcibly liquidated during this drop, further exacerbating the decline. Ultimately, the price ended up below $3,000, causing significant declines in smaller cryptocurrencies in the Ethereum series.
The reasons for the decline can be summarized as three points: “Mt Gox officially transferring wallets,” “continuous selling from mining farms,” and “the German government selling Bitcoin.” First, the Mt Gox incident can be considered as emotional selling, and the potential scale of $7 billion in sales still worries investors, leading them to take profits and exit.
Even though most analytical institutions believe that the actual impact on the market will not be significant because it has been more than a decade since the incident, many claims are likely to be lost, sold, or lacking documentation. Users may not necessarily sell all their Bitcoin, and a certain proportion of investors will choose to continue holding Bitcoin. However, we have seen many on-exchange investors choosing to exit and wait and see.
Next is the selling from mining farms. After the Bitcoin halving, many small and medium-sized mining farms faced losses or the fate of being acquired. The opportunities created by this have led to the expansion of computing power for large mining farms such as Riot and Digital Marathon. Riot also plans to expand its computing power fivefold, from 22 EH/s to 100 EH/s, requiring a larger deployment of mining machines. To support capital expenditures, most mining farms choose to sell Bitcoin for cash, adding continuous selling pressure to the market.
The third point is that the German government did not handle the seized Bitcoin assets through OTC off-exchange markets but directly transferred 6,500 BTC to exchanges for sale. This behavior is not wise. If they had chosen off-exchange transactions, the magnitude of this crash would not have been so great. However, the government chose the least effective way to complete the transaction, and the resulting price fluctuations were much larger than anticipated. Previously bullish high-leverage contracts were forcibly liquidated, further depressing the Bitcoin price.
Loose monetary policy and interest rate cuts are long-term trends. In contrast to the on-exchange selling, Bitcoin ETFs have played the role of absorbing market liquidity this time. In the past week, Bitcoin ETF funds have seen net inflows of hundreds of millions of dollars. Only on Friday, after Bitcoin itself plummeted, did it lead to a small outflow of $20 million from ETF funds.
The net outflow of Bitcoin ETF funds is much lower than expected, indicating that Wall Street investors still have concerns about this crash but are not in a state of panic. However, this is only data from one trading day. What we are concerned about is if Bitcoin continues to decline rapidly, it may trigger a chain reaction of net outflows from Bitcoin ETF funds.
The deciding factor is whether the German government continues to sell cryptocurrencies on the secondary market and exert short-term pressure on the Bitcoin price. The market sell-off is still ongoing. If it is difficult to withstand significant market fluctuations, one can establish some short positions as a hedge against short-term downside risks. The negative factors are expected to continue until mid-July, and a recovery is expected afterwards.
After this significant forced liquidation, the cryptocurrency market will need a long time to restore trading confidence. The estimated fair price of $70,000 for Bitcoin has not changed, but Ether may be a better medium-term trading target.
However, if we extend the time frame, we still have a positive outlook on the price performance of the cryptocurrency market. This short-term rollback may provide better entry opportunities. First, the listing of Ether ETFs in mid-July will lead the way for low-level buying by fund companies, regardless of trading confidence. This is a necessary action for fund companies to issue products. If the price continues to decline until that time, it will also provide a good reason for investors to buy the dip.
Looking ahead to September, it is expected to be the first interest rate cut by the Fed. Considering the upcoming US presidential election, reducing pressure on the population and avoiding an economic recession in the United States in advance, the Fed has a good chance of cutting interest rates ahead of time to test the market’s reaction. This also aligns with the market’s expectation of one interest rate cut through the Fed’s meetings this year.
Furthermore, the long-term policy of the US continuing to provide stimulus will not change, and holding Bitcoin is still the best solution for value storage. Those with lighter positions can take advantage of this dip to continue buying, achieve a lower cost of holding, and wait for the subsequent price rebound and recovery.
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