Bitcoin Plunges: Mt.Gox Compensation, German Government Sell-Off, Market Fear Spreading?

Bitcoin Plunges: Mt.Gox Compensation, German Government Sell-Off, Market Fear Spreading?On July 5, 2024, Bitcoin prices took a dramatic dive, falling below the $54,000 mark at one point, with the largest drop exceeding 8%

Bitcoin Plunges: Mt.Gox Compensation, German Government Sell-Off, Market Fear Spreading?

On July 5, 2024, Bitcoin prices took a dramatic dive, falling below the $54,000 mark at one point, with the largest drop exceeding 8%. This plunged the price to its lowest level since February of this year. Major cryptocurrencies like Ethereum (ETH) and Solana (SOL) also saw declines of around 10%, sending shockwaves through the market.

What triggered this significant decline in Bitcoin prices?

While there may not be a single answer, several factors have intertwined to drive intense market volatility.

I. Mt.Gox Compensation Casts a Shadow Over the Market

In 2014, the Japanese Bitcoin exchange Mt.Gox suffered a hacking attack, resulting in the theft of over 850,000 Bitcoin, worth $460 million at the time. This event became a landmark in crypto history, casting a shadow of uncertainty over the security of the crypto market.

After lengthy legal battles and bankruptcy proceedings, Mt.Gox finally began compensating creditors this year. However, this has become the catalyst for market panic.

• Massive Compensation Sell-Off Pressure: Mt.Gox creditors have been waiting for over a decade, during which time the price of BTC has surged over 10,000%. To recoup their funds, some creditors may choose to sell their Bitcoin, putting selling pressure on the market.

• Test Transactions Trigger Market Worries: On July 4, Arkham platform tracked wallet data showing test transactions from Mt. Gox wallets, transferring a total of $25 worth of Bitcoin in three transactions to different wallets. This could indicate the impending start of compensation, further fueling market fears.

• Transfer of Funds to Receiving Addresses: On July 5, PeckShieldAlert monitored the transfer of funds from the address receiving 47,200 BTC from Mt.Gox to two new addresses. This move intensified market concerns about Mt.Gox compensation sell-offs, causing significant market upheaval.

II. Concerns Stemming from the German Government's Bitcoin Sell-Off

In January, the German government announced the seizure of nearly 50,000 BTC, worth approximately $2.1 billion, from the suspected operator of the pirate streaming platform movie2k. This illicit loot was frozen by the German government, and plans were made to sell it gradually.

• Gradual Sell-Off Amplifies Market Panic: Starting on June 19, the wallet holding these illicit funds began selling Bitcoin in small batches, selling 6,500 BTC on that day. On July 4, the wallet transferred another 1,300 BTC to exchanges like Bitstamp, Coinbase, and Kraken, and 1,700 BTC to an anonymous wallet address. On the afternoon of July 5, another 500 Bitcoin, valued at approximately $27.07 million, were transferred to a new address.

• Enormous Government Sell-Off: Despite these large-scale transfers, the German government still holds over 4,000 BTC, worth around $2.3 billion. This hefty sum is enough to exert significant pressure on the market and could cause some investors to lose confidence.

• Intense Market Sentiment Volatility: Justin Sun, the founder of Tron, posted on social media, "I am willing to negotiate with the German government to buy all of their Bitcoin off-market to minimize the impact on the market." This incident further sparked market discussion and panic, reflecting the market's anxieties about government sell-offs.

III. Miner Pressure Intensifies Market Sell-Offs

Bitcoin mining requires significant computing power and energy, with miners earning their income primarily from mining rewards and transaction fees. Bitcoin's hashrate has grown year after year, increasing competition among miners.

• Halving Impact on Miner Income: In March of this year, Bitcoin underwent halving, reducing the miner reward per block by half, leading to a decline in miner income.

• Inefficient Miners Exit the Market: Affected by the halving, miners with declining revenue were forced to exit the market, causing a sharp drop in Bitcoin's hashrate. OKLink data shows that Bitcoin's network hashrate has decreased by 15% from its peak over the past two months, and has been in a continuous downward trend for the past week.

• Miners Selling Bitcoin: Along with the decline in hashrate, miners are also selling Bitcoin. IntoTheBlock data reveals that Bitcoin miners have cumulatively sold over 50,000 Bitcoin since the beginning of 2024, gradually reducing their Bitcoin reserves to their lowest level ever. Data shows that miners have sold Bitcoin worth a total of $150 million in the preceding week alone.

• Reduced Miner Income: A report from CryptoQuant states that Bitcoin miner transaction fee revenue has fallen to just 3.2% of daily total revenue for most of the time since halving, marking the lowest share in three months. With insufficient incentives, miners are starting to shut down underperforming equipment and are beginning to sell Bitcoin to hedge against risks.

IV. Stalled Progress of Spot Ethereum ETF Listing

The listing of a spot Ethereum ETF has attracted significant market attention, seen as a crucial milestone in the development of the cryptocurrency market. However, the launch of this product has faced setbacks, with the market initially expecting approval on July 4. Yet, there has been no news to date.

• Dashed Market Expectations: The delay in listing the spot Ethereum ETF has disappointed market expectations and weakened investor confidence in the cryptocurrency market.

• Diminished Market Sentiment: The failure to launch the spot Ethereum ETF could further dampen market sentiment and discourage investors from investing in the cryptocurrency market.

V. Uncertainties Surrounding the US Election

The world is currently focused on the US election. Geoffrey Kendrick, Head of FX and Digital Asset Research at Standard Chartered Bank, stated that if Biden continues to run for president, the market will perceive this as favorable to Trump's victory. Consequently, Bitcoin prices could potentially hit a new high in August, surpassing $100,000 by the US election day.

• Biden's Withdrawal from the Election: However, if Biden withdraws from the presidential race at the end of July, it could cause Bitcoin prices to drop to $50,000. He noted that if Biden's Democratic successor appears more reliable than Biden, Bitcoin prices will remain weak.

• Political Risk Impact: The outcome of the US election will directly impact US cryptocurrency regulatory policies, which in turn will influence Bitcoin's price trajectory.

VI. Hack Attacks and Rampant Phishing

The crypto market's risks extend beyond price fluctuations. In the first half of this year, the amount of cryptocurrency stolen through hacking and vulnerabilities has more than doubled to $1.38 billion. Among these, five major attacks accounted for 70% of the stolen cryptocurrency.

• Increased Security Risks: Hackers primarily steal cryptocurrency by obtaining private keys and seed codes - cryptographic strings. The largest attack this year occurred at Japanese exchange DMM Bitcoin, with over $300 million worth of Bitcoin stolen, exceeding 4,500 coins. The cause of the attack is yet to be determined.

• Increase in Phishing Events: According to a mid-year phishing report by Scam Sniffer, 260,000 victims lost $314 million across EVM chains in the first half of 2024. This figure was reached in just six months, exceeding the $295 million stolen last year.

• Investor Concerns: The growing number of hacking attacks and phishing incidents will increase investors' concerns about the security of the crypto market, leading to a decline in their investment interest.

VII. Uncertainty in Regulatory Policies

Regulatory policies regarding digital assets are still evolving globally, and any new regulations could have a profound impact on the Bitcoin market.

• Policy Uncertainty: Currently, countries and regions like the US and the EU are actively promoting regulations for digital assets, but specific policy details are yet to be determined, creating a degree of uncertainty in the crypto market.

• Increased Investment Risk: Policy uncertainty poses greater risks for investors as they struggle to predict future policy changes and make informed investment decisions.

VIII. Technological Risks, Security Risks, and Fraud Risks

Digital asset storage and trading processes may be susceptible to hacking, system failures, or other technical issues, resulting in asset losses.

• System Vulnerabilities: Cryptocurrency trading platforms may have system vulnerabilities that could lead to the theft of user assets.

• Hacking Attacks: Hackers may employ various methods to attack cryptocurrency trading platforms, stealing user assets.

• Fraud Risks: The market may contain fraudulent projects or scams, and investors need to exercise caution in identifying them to avoid being cheated.

IX. Market Sentiment and Macroeconomic Environment

Market sentiment and the macroeconomic environment can also significantly influence Bitcoin prices.

• Market Sentiment Fluctuations: Fluctuations in market sentiment directly impact Bitcoin prices. For instance, when the market is optimistic, Bitcoin prices tend to rise; conversely, when the market is pessimistic, Bitcoin prices tend to fall.

• Macroeconomic Environment: Macroeconomic factors, such as interest rates, inflation