The cryptocurrency market is full of anxiety! Will the Bitcoin "whales" also turn into sellers?
As Bitcoin lags behind traditional assets, concerns about declining market liquidity and governments potentially selling off their cryptocurrency reserves have intensified. Research shows that countries such as the United States, the United Kingdom, and Ukraine are potential sellers, while Mt. Gox creditors may also sell off. The price of Bitcoin has dropped by about 8% this month, and reduced liquidity could amplify price fluctuations. Despite an increase in net inflows into ETFs, the market continues to show weakness
As August draws to a close, Bitcoin's performance has lagged behind traditional assets, suppressed by decreasing liquidity and ongoing concerns that governments may sell their cryptocurrency reserves.
Research firm Kaiko wrote in a report that countries like the United States, the United Kingdom, and Ukraine may be potential sellers of cryptocurrencies, as well as creditors receiving tokens from the collapsed digital asset exchange Mt. Gox. According to analysis, this may account for part of the $33 billion Bitcoin supply surplus.
Kaiko estimates that the U.S. government holds around 20,320 Bitcoins, the UK holds 61,200, and Ukraine holds 46,350. These governments typically seize tokens in criminal cases, with Ukraine believed to have received cryptocurrency donations to fund its resistance against Russia. Meanwhile, Kaiko stated that Mt. Gox still has around 46,170 Bitcoins awaiting repayment.
Kaiko analysts Adam Morgan McCarthy and Dessislava Aubert said, "The supply surplus has been a topic in the entire summer cryptocurrency market." They added that some "prominent holders may become potential sources of selling pressure in the coming months."
Decreasing Liquidity
Concerns about large sell orders accompany the decrease in Bitcoin market liquidity, which could amplify price fluctuations to accommodate large trades. Against this backdrop, Bitcoin has fallen by about 8% so far this month, while global stock and bond indices have risen by about 2%.
Sean Farrell, digital asset strategy director at Fundstrat Global Advisors LLC, wrote in a report, "Bitcoin spot market volume remains subdued, leading to recent price volatility." He added that seasonal trends suggest that Bitcoin trading activity typically picks up after the U.S. Labor Day holiday.
Farrell pointed out an indicator, the seven-day average turnover rate of Bitcoin (volume divided by the token's market value), which peaked near 5% after hitting a historical high in March for digital assets, and has now dropped to around 2%.
Despite net inflows into U.S. Bitcoin exchange-traded funds (ETFs) and increasing expectations for the Federal Reserve to ease monetary policy in the coming weeks, Bitcoin has struggled in August.
Strategists at JPMorgan Chase & Co. noted that liquidity has also become more challenging in the U.S. Bitcoin ETF space. This is partly based on a metric called the Hui-Heubel liquidity ratio, which aims to provide insights into liquidity by measuring the number of trades needed to move prices
Trading volume of US spot Bitcoin ETF declines
The team at JP Morgan, including Nikolaos Panigirtzoglou, stated: "It is worth noting that since March, this indicator has deteriorated in all spot Bitcoin ETFs, indicating an overall deterioration in liquidity of spot Bitcoin ETFs over the past six months."
Currently, the daily total trading volume of US Bitcoin ETFs has dropped from over $10 billion in March to less than $2 billion