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The crypto market experienced a notable drop today on 4 July, as the overall market cap is down by nearly 5%. The Bitcoin price alone has dropped over 5% today, marking the second time in a week that the largest cryptocurrency has dipped below $60,000.
Several key events across the industry has contributed to this latest drop.
Why is Bitcoin dropping?
Mt. Gox liquidation
A significant reason for the recent downturn is the anticipated sale of Bitcoin by Mt. Gox creditors. Mt. Gox, a defunct crypto exchange, experienced a major hack in 2014, leading to the loss of a substantial amount of Bitcoin.
Liquidators have announced they will begin returning the stolen Bitcoin to clients starting in early July. This move is expected to flood the market with a large quantity of Bitcoin, creating immense selling pressure.
Market cycle indicators
Several key metrics indicate potential trouble ahead. The Bitcoin long-term holder (LTH) inflation rate has been rising steadily over the past two years, currently standing at 1.9. When this rate reaches 2.0, it typically signals a market cycle peak.
Additionally, the Bitcoin Dormancy Flow, which measures the number of coins being spent relative to the overall trend, has been increasing over the past three months. Historically, peaks in this metric have preceded market cycle tops by about three months.
Large-scale BTC sell-off
Reports suggest the German government is selling hundreds of millions of dollars worth of Bitcoin. This news, combined with the impending Mt. Gox Bitcoin release, has made traders and investors extremely cautious. The fear of a significant market impact from these sales is driving much of the current selling pressure.
The downturn isn’t limited to Bitcoin. Other major cryptocurrencies, including Ether, Binance Coin, and Solana, have also seen significant price drops. This broader decline suggests a general shift in investor sentiment, contributing to the negative market trend.
Despite these recent losses, Bitcoin’s price is still up 42% year-to-date. Much of this gain came earlier in the year, driven by excitement over the approval of spot Bitcoin exchange-traded funds (ETFs) in January. However, recent events have overshadowed these gains, leading to the current bearish sentiment.
Major outflows and whale movements
Another factor contributing to the decline is the significant outflows and movements by large holders, known as whales. On 3 July, a major outflow hit the BTC ETF, and a prominent crypto whale sold millions of dollars worth of altcoins, sustaining significant losses. These large-scale transactions often signal market instability and can trigger further sell-offs.
The market has also been hit hard by rising liquidations. Yesterday, BTC liquidations reached $14million, but today, this figure surged to $36m. These large-scale liquidations have caused widespread sell-offs, further driving down Bitcoin’s price.
Miners’ struggles
BTC miners are currently facing significant challenges. A persistently low hash rate has led to decreased earnings, forcing many miners to sell their Bitcoin to maintain operations. Some miners are even switching to other proof-of-work tokens to sustain profitability, adding to the selling pressure.
Bearish market sentiment
Overall market sentiment has turned bearish. A chart tracking Bitcoin flows in spot and derivative exchanges currently shows a negative outlook. Bitcoin lost several key support levels in June, suggesting a midterm bearish trend.
Analysts warn that if bearish sentiment continues, Bitcoin could drop to around $48,000 before potentially rebounding. This situation marks a critical test of Bitcoin’s resilience amid ongoing market turbulence.
The combination of these factors has created a perfect storm, leading to the current downturn in the cryptocurrency market. Investors and traders will need to stay vigilant and watch for further developments as the situation unfolds.
