A look into Bitcoin market dynamics: can the selling pressures from Mt.Gox, the German government, and the miners be absorbed by new high-profile and institutional buyers?

Since the beginning of July, Bitcoin price lost 16% (recovering since to -10%). In a situation where so many expect a glorious bull run to new highs, this correction might feel painful and even scary. Indeed, the “Fear and Greed” index has fallen to the “Fear” levels of the beginning of January 2023, just after the FTX crash. Remember BTC at $16k then? Hope you made the most of it 😅

The key difference is that this time there was no major catastrophe like the FTX crash or a global pandemic. The most likely visible reason that could explain this (rather healthy) correction is a simple increase in selling pressure and the expectations of future selling pressure, which drives prices down. Currently, we can identify three major selling groups – Mt.Gox, the German Government, and Bitcoin miners.

Good news: we can calculate the extent of these actors’ impact. More good news: buying pressure could increase too thanks to new high-profile buyers and ETF investors who regain optimism in light of the improving interest rate projections.

Let’s see all that in more detail.

BTC selling pressure

Mt Gox refund

Mt. Gox-related selling sentiment has been influencing the market since 2021, when the Tokyo District Court approved a rehabilitation plan for this exchange, which was hacked and eventually collapsed in 2013. The hefty sum of 141,687 BTC ($8.7 billion) that law enforcement could recover has an undeniable potential to drive the market downward if the creditors choose to sell all at once.

Since the end of May, Mt.Gox trustees have been moving big amounts of bitcoin between their addresses, each time causing markets jitters and price slumps. On July 5th, they transferred 47,229 BTC to a new address, followed by 1,545 BTC sent to the Bitbank exchange. Bitcoin price quickly dropped almost 9%.

So far, Arkham Intelligence considers all the outflow addresses (except Bitbank) belonging to Mt.Gox, suggesting that such a dramatic reaction could be more psychological than creditors immediately dumping the received bitcoin. However, we cannot truly know their intentions. Even if half of this recovered BTC is put on the market, it could significantly influence the price. For comparison, the average daily bitcoin trading volume on exchanges is currently around $250 million (data: blockchain.com). With half of Mt.Gox reserves now worth around $4 billion, it’s understandable why this volume scares the market.

Government selling

Governments are among the largest BTC holders, primarily due to the seizures of unlawfully obtained bitcoin.

In January, the German government gained access to 50,000 BTC ($2.8 billion) seized from the piracy website movie2k.to (active until 2013). Three weeks ago, it started transferring those coins to crypto exchanges (Kraken, Bitstamp, and Coinbase) and market makers’ addresses, presumably to sell (source: Arkham Intelligence). As of now, the German government holds 23,788 BTC in its wallets, which means it has likely sold roughly a half of its stash, with another half yet to go.

The U.S. government is a whale among governments, with at least 213,297 BTC in its wallets. It also regularly sells its assets, albeit less abruptly than the Germans.

Miners selling

Bitcoin miners, natural sellers due to their need for a stable cash flow, have also contributed to the recent decline. Higher energy costs (it’s summer!) and reduced profitability due to the halving are pushing miners to sell their reserves, which have recently reached the lowest in 14 years, dropping below 1.9 million BTC.

Miners’ revenue has fallen from an average of $55 million daily in January-March to around $30 million after the halving, leading some miners to shut down operations or pivot to AI data centers. As a result, the Bitcoin hashrate, which reflects the total computing power of the network, is dwindling. In fact, the hashrate drawdown is now comparable to the one experienced after the FTX crash (data: CryptoQuant).

A lower hashrate means lower security for the Bitcoin network, but there is a silver lining. The above signs indicate the so-called miner capitulation – the event that usually precedes a recovery.

Bullish signs

Institutional investors buy the dip

As the market sentiment enters the “Fear” zone, institutional investors buy the dip. According to the data compiled by Farside Investors, U.S.-based spot Bitcoin ETFs saw $143 million in net inflows last Friday and $295 million yesterday, after many weeks of outflows and generally low interest.

This category of BTC investors is more susceptible to market reasons than Bitcoin’s ideals, which makes us wonder what event has prompted them to buy now.

Fed to cut rates in September?

The U.S. Federal Reserve’s interest rate greatly impacts global finance, and recent macroeconomic indicators give hope for a potential rate cut in the near future. A recent investor note by ING points out a decrease in job creation, with the 3-month moving average now at its weakest since January 2021. Coupled with the unemployment rate rising to 4.1%, we could assume that the Fed’s efforts to cool the economy are paying off and that the agency could allow itself to cut rates. Citi concurs, forecasting that rates could reach 3.5% within a year (they are currently at 5.5%).

Lower interest rates mean cheaper money and more risk-on investment, including Bitcoin.

High-profile buying

The number of major Bitcoin buyers continues to grow. Michael Dell, founder and CEO of Dell Technologies, stirred much excitement in the Bitcoin community last month. In a series of suggestive tweets like “Scarcity creates value” or a Bitcoin cookie monster, the billionaire hinted he could become the next high-profile Bitcoin aficionado. With Dell Technologies’ stock increasing nearly fivefold since its 2018 public market return and a comfortable $5.8 billion  cash reserve, the company’s potential investment in Bitcoin could greatly impact the market. Additionally, Mr Dell himself could create a noticeable buying pressure, having cashed out $2.1 billion this year.

OG Bitcoin bulls, like Michael Saylor and his company  Mictostrategy, continue to exert a steady buying pressure on the market. Last month, Microstrategy acquired another 11,931 BTC, bringing its BTC treasury to an impressive 226,331 BTC, now worth almost $13 billion.

All selling pressure ends by being absorbed by the market, sooner or later. In the current situation, where most fears are driven by speculations about Mt.Gox creditors dumping their coins (and not some catastrophic crash endangering the entire market), we could expect a healthy rebalancing of selling and buying pressures. Hopefully, these people will have the wisdom to sell their coins sparingly 🤞

With both market sentiment and mining indicators reaching the post-FTX levels, there are reasons to believe in a potential bottom-out soon, possibly strengthened by the Fed’s policies and influential buyers.

Hold tight 😊