Bitcoin, the world’s leading cryptocurrency, is poised for its steepest weekly decline in over a year, triggered by concerns about potential large-scale sales from creditors of the defunct Mt. Gox exchange. The price of Bitcoin fell as much as 8% on Friday, hitting a low of $53,523, a level not seen since late February. This marked a potential 12% drop for the week, the largest since early November 2022.
This downturn comes amid broader unease in the cryptocurrency market. Ether, the second-largest cryptocurrency, also dropped 9% to $2,841, reaching its lowest point in over two months.
The decline is largely attributed to fears that creditors of Mt. Gox, once the world’s dominant cryptocurrency exchange, will soon start selling the Bitcoin they are owed. Mt. Gox collapsed a decade ago after losing 850,000 Bitcoin in a hack, leaving thousands of creditors waiting for reimbursement. With Bitcoin’s value having skyrocketed from a few hundred dollars in 2014 to tens of thousands now, the anticipated liquidation is expected to increase selling pressure on the market.
Tony Sycamore, a market analyst at IG, explained that the current selling pressure appears linked to the expected selling from Mt. Gox creditors. “The market seems to be trying to get ahead of these creditor flows,” Sycamore noted, suggesting that traders might be preemptively selling in anticipation of a market glut.
The sell-off in Bitcoin is occurring despite relatively stable conditions in traditional equity markets, which contrasts with the usual correlation between Bitcoin and mainstream equities. Antoni Trenchev, co-founder of the cryptocurrency platform Nexo, pointed out this divergence, noting that the slide in Bitcoin prices is happening while U.S. stocks and global equity indexes are at or near record highs.
The recent trend of Bitcoin’s price being range-bound has led to a build-up of leveraged positions. According to Justin D’Anethan of digital assets market maker Keyrock, the presence of these positions has exacerbated the price decline. “With an asset that has been range-bound and recently trending lower, there are many margined positions, creating a cascading effect and pushing prices further down,” D’Anethan explained.
Bitcoin experienced a strong start to the year, peaking at a record $73,803.25 in mid-March following the launch of exchange-traded funds in the U.S. However, it has struggled to maintain momentum in recent months.
Adding to the uncertainty are concerns about the regulatory environment, particularly in light of the recent U.S. presidential debate. Analysts have speculated that the possibility of a change in the Democratic nominee, potentially to someone less supportive of cryptocurrencies, could impact market sentiment. This follows a recent debate performance by President Joe Biden that has led to speculation about his future in the race.
As Bitcoin faces these multifaceted pressures, its ability to recover will likely depend on how the market absorbs the potential influx of Mt. Gox-related Bitcoin and whether leveraged positions can be unwound without further exacerbating price declines. The cryptocurrency market’s reaction to regulatory signals and political developments will also be key factors to watch in the coming weeks.
