05 July 2024

Bitcoin has crashed today and is now trading around $54,000. A significant shift in sentiment has seen the crypto market go below $2 trillion for the first time since February this year. Crypto fear and greed index, which was 75 and in greed in the past month, is now tracking at 29 (in fear). If you are in considerable losses, remember that this too shall pass. Stay strong!

If you are just waking up to crypto’s performance, seems like you have other good things to take care of.

In our Hot Take, we decode reasons for this bloodbath and when a revival is possible.

First up, lets dive into the top-3 stories and macros of the week.

Top-3 stories of the week:

1

2

3

The newsletter is put together by Giottus Crypto Platform. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $1.99 trillion - DOWN  13.1%

• Bitcoin price - $54,377 - DOWN 11.7%

• The dollar index (DXY) - 105.02 - DOWN 1.0%

• Bitcoin Dominance - 55.03% -  UP 1.3%

• Crypto Fear and Greed Index - 29 - Market is in Fearful State

THE HOT TAKE

Bitcoin’s bloodbath reminiscent of FTX collapse

There! We said it. Today brings back memories of November 2022 when the FTX collapse happened right in front of our eyes.

Apparently, data seems to suggest the same.

There is one silver lining to all this. We all know that November 2022 marked the local bottom for the next 18 months. We have a feeling, when the storm is over, this will be a bottom for the year and beyond.

How close are we to the bottom? First, we must understand what has happened so far.

1. Mt. Gox and its repercussions

The Mt. Gox fiasco is often seen as the wild west of early crypto mishaps. If you're unfamiliar with the event, here's a brief rundown.

Mt. Gox (Magic: The Gathering Online) was a Japanese crypto exchange that operated from 2010 to 2014. At its peak, it handled around 70% of all Bitcoin trading volume. However, in 2014, Mt. Gox announced that nearly 750,000 BTC belonging to its customers and around 100,000 of its own had been stolen from its hot wallet over several years, starting as early as 2011. This loss represented about 7% of all Bitcoins at that time.

The exchange went bankrupt and a Trust was established to repay creditors with the remaining assets. Today, approximately 142,000 BTC, 143,000 BCH, and nearly half a billion dollars in fiat are set to be repaid. At the time of shutting down, Mt. Gox’s total Bitcoin value was approximately worth $75 million.

On June 24, the Mt. Gox Rehabilitation Trustee announced they would begin repaying creditors in early July. This means about $9 billion in Bitcoin will start hitting the market any time, equivalent to all BTC mined in the past six months. This news has caused some concern among Bitcoin holders, leading to a price drop as whales started selling off their holdings.

Why, we believe, Mt. Gox’s distribution will be a non-event?

• It is estimated that about 75% of the creditors took an early lump sum deal. This means the supply to be distributed in July drops to around 95,000 BTC.

• More than a fifth of these tokens are owned by MGIF fund and they have clearly stated that they don’t intend to sell, which likely brings the count to be distributed to 75,000.

• Selling immediately would result in a significant tax event due to strong price appreciation, leading many creditors to likely sell only a small portion of their holdings or hold for the time being.

2. Some governments are offloading their stash

The German and US governments have started actioning sales of seized BTC assets. This is another trigger for the market to feel bearish in the short term.

• The German Federal Criminal Police Office had seized around 50,000 BTC from a film piracy website. Recently, they’ve been moving BTC around, sending some to exchange addresses at Coinbase, Kraken, and Bitstamp.

• In late 2022, the US government seized roughly 50,000 bitcoins related to the Silk Road website. Last week, they also moved 3,940 BTC to Coinbase. These were originally seized from a narcotics trafficker.

• Predicting government actions are impossible, so this will likely continue to be a source of fear, uncertainty, and doubt (FUD) for now.

3. ETF outflow risks looms

Last week, the Bitcoin spot ETF market in the US experienced a net outflow of $37 million. IBIT led with the highest inflow of $82.4 million, while GBTC saw the largest outflow at $155 million. Most of the gains in 2024 have been attributed to inflow of new capital via the ETFs. If there are more outflows, naturally, price can take a short-term hit.

Why does speculation regarding $9 billion worth BTC (Mt. Gox) impact its $1 trillion market in a significant way?

This is a tricky question with a straight forward answer. Leverage.

Nearly $650 million in long liquidations have happened in the last 24 hours. This also means that most activity is driven by futures market currently than spot. Even more reason to believe that the market will recover soon.

What’s ahead?

Bitcoin has broken key support including its 200-day EMA at $58,300 and major support at $56,000. It is likely to find its local bottom somewhere between $48,000-$52,000 in the next couple of weeks. As an investor, avoid using any leverage in these turbulent times. Avoid altcoins till there are definite signs of a reversal. Focus on gaining some entries when a local bottom does occur. All signals point to a strong second half performance in 2024. Till then, bite it off and remain patient. Brighter days are ahead.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.