Why is Bitcoin down today?

The market is all red again.

Last week, Bitcoin has lost nearly $5,000 of its value, plummeting from a comfortable position above $66,000 to hover around the $61,000 mark (at the time of writing). This sudden drop has left investors and analysts confused.

This sharp decline coincided with a significant change in market sentiment. Cryptocurrency Fear and Greed Index dropped from 60 to 49 in just 13 days, moving from “Greed” to the edge of “Neutral” territory.

The sudden drop in prices and shift in sentiment has left many wondering about the underlying causes.

Several important events in crypto appear to have influenced this market movement.

Let’s jump into the details of what’s happening in the Bitcoin market and explore the factors behind this recent drop.

Reason #1: German Government Selling Bitcoin

The cryptocurrency market has seen significant turbulence following news that the German government is preparing to liquidate a substantial stake in Bitcoin.

The German Federal Criminal Police (BKA) held approximately 50,000 BTC, seized from a piracy website in 2013, now valued at over $3 billion.

This news, which came to light a few days ago, likely triggered Bitcoin’s initial drop from $66,000 to $63,000 – as seen on CoinMarketCap.

The prospect of such a large amount of Bitcoin potentially entering the market has caused concern among investors.

Reports suggest that German authorities have already begun the process, selling around 3,000 BTC in the last few days. However, the majority of the stake – 47,000 BTC – has not yet been sold.

The government appears to be taking a measured approach to minimize the impact on the market, but investor anxiety persists.

Reason #2: Big players hitting the brakes

The second major factor behind the recent drop in Bitcoin prices involves the biggest fish in the market – the “whales.”

Here’s what’s happening: Whales have suddenly become much less active. Data from Sanctification shows that large transactions (over $100,000) dropped by 42% in just a few days. This is a significant change in behavior.

So why does this matter? Well, when whales slow down their trading, it often signals caution. This whale behavior is especially interesting because it occurs right after a period of intense selling.

What does this mean for the market? It could be that these big investors are waiting to see if prices will fall further before they start buying again. Or they could be holding off on selling more to prevent prices from falling too quickly.

Either way, when whales go quiet, it’s usually a sign that the market is at a crossroads. Their next moves could give us clues about where the price of Bitcoin could go in the coming weeks.

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Reason #3: Mt. Gox returns with refunds

The defunct exchange resurfaced and shook things up once again. More than a decade after its collapse, Mt. Gox announced that it will begin repaying its creditors – and the news sent ripples through the Bitcoin market.

Mount Gox Rehabilitation Trustee Nobuaki Kobayashi announced that Bitcoin and Bitcoin Cash payments will begin in early July.

Why is that so important?

Well, Mt. Gox was once the largest crypto exchange before its dramatic closure in 2014.

We’re not talking about a small change. The three Mt. Gox wallets combined hold 141,686 BTC, worth approximately US$8.71 billion.

The fear is simple: As creditors finally get their hands on your long-lost Bitcoin, many may rush to cash out. This potential flood of Bitcoin hitting the market is making investors nervous.

The impact was almost immediate. Bitcoin’s price plummeted to $61,060, marking a 6.5% drop in just 24 hours. Although it has recovered slightly to around $61,300, the market remains nervous.

It’s not just Bitcoin that’s feeling the heat. Bitcoin Cash (BCH) has also taken a hit, falling 9% following the announcement.

Although the refund process is expected to begin soon, it is important to note that it could extend for several months. The repayment deadline was previously extended until October 2024, giving the market some room for maneuver.

Reason #4: Domino Effect

The recent drop in Bitcoin’s price was not just due to external factors. A significant internal market mechanism played a crucial role in amplifying the decline: waterfall settlements in the derivatives market.

Think of it as the crypto world’s version of the domino effect, and it’s been in full swing over the past 24 hours.

Here’s what happened: When the price of Bitcoin started falling, it triggered a chain reaction in the derivatives market. According to data from Currency currency$311.3 million worth of crypto positions were liquidated in just 24 hours.

Of that $305.89 million, $275.75 million were long positions. In plain English, this means that the vast majority of these liquidations hit traders who were betting on the crypto price to rise.

This cascade of liquidations is not the root cause of Bitcoin’s price drop, but it certainly didn’t help matters.

As the market navigates these issues, it’s clear that multiple factors are at play. The German government’s Bitcoin moves, changes in whale behavior, Mt. Gox’s payment plans, and cascading liquidations have all contributed to the recent price volatility.

While short-term fluctuations can be unsettling, they also provide valuable insights into market dynamics. As the dust settles, market participants will be closely watching how these factors evolve and influence Bitcoin’s trajectory in the coming weeks and months.

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