Uncertainty Looms Over Bitcoin Despite Bullish Trends and Increased ETF Investments
Summary:
Bitcoin dropped 6.7% from $72,000 to $67,100 on May 21st. Although it's a significant dip, the cryptocurrency is just 8.7% below its peak, leading some investors to question why the increase in Bitcoin exchange-traded funds hasn't triggered a more bullish sentiment. The price drop coincides with investment behavior typically prompting a withdrawal of Bitcoins from exchanges, lending to a decrease in market liquidity. There are speculations that the insolvent Mt. Gox exchange move of 141,686 BTC signals an imminent asset distribution. This, combined with the U.S's regulatory uncertainty, casts doubt upon Bitcoin's investment appeal. Presently, it appears that a bearish trend may dominate the cryptocurrency market in the short term.
On May 21, Bitcoin (BTC) had a 6.7% dip, falling from nearly $72,000 to $67,100. Despite this fall, Bitcoin is merely 8.7% short of its all-time high, dismissing the assumption of a bearish wave. Nevertheless, the puzzle for investors is why increasing investments in Bitcoin's spot exchange-traded funds (ETFs) haven't significantly boosted bullish sentiment.
Data from Farside Investors demonstrates that the United States' spot Bitcoin ETFs have experienced $1.96 billion in net inflows since May 15, equivalent to 64 days of BTC mined. As a highlight, the market for U.S. spot Bitcoin ETFs has crossed $50 billion in assets managed, while gold ETFs in the U.S. oversee roughly $118.5 billion, as stated by the World Gold Council.
Generally, investments in spot Bitcoin ETFs trigger a corresponding decline in Bitcoins held on exchanges. Currently, this figure is at its lowest since March 2018 - 2.3 million BTC according to Glassnode data. Though it is not absolutely certain that these coins will be sold anytime soon, relocating them to cold storage and custodians outside the exchanges usually decreases market liquidity. This becomes more significant in bull markets, where leaner order books at higher prices can exacerbate price changes caused by robust buying.
Considering that the price is consistently dropping despite institutional investors continually acquiring Bitcoin through ETFs, it's possible that selling pressure is emerging from regular spot markets. Some speculate that the movement of 141,686 BTC by the insolvent Japanese exchange Mt. Gox on May 28 may be a sign of upcoming asset distribution to its lenders, ahead of the October 31 deadline.
Mt. Gox is due over $9.4 billion in Bitcoin to approximately 127,000 creditors, who have been in a holding pattern for over a decade since the exchange's downfall in 2014 due to numerous hacks. While this debt repayment could have a short-term negative influence on Bitcoin’s price, Anndy Lian, a governmental blockchain expert, is of the view that settling this debt can eliminate this longstanding uncertainty once and for all.
One reason why Bitcoin holders may be looking to cash out above $67,000 is the U.S.'s regulatory uncertainty. Lawsuits have been pursued by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission against major exchanges and intermediaries such as Binance, Coinbase, Kraken, KuCoin, and Robinhood.
Simultaneously, the U.S. Department of Justice has pressed charges against the founders of Tornado Cash and the developers of Samourai Wallet for money laundering and Roger “Bitcoin Jesus” Ver for alleged tax evasion and fraud offences from seven years ago. These incidents, while not directly affect Bitcoin, do mar the perception of the industry, making it less appealing to institutional investors.
This issue stretches beyond the U.S., as Hong Kong's Securities and Futures Commission has issued a deadline to unregistered cryptocurrency exchanges operating in the region. At the end of May, only 18 exchanges have applied for a license, with key platforms such as OKX, Huobi, and Gate choosing not to apply due to the strict regulatory prerequisites imposed by Hong Kong.
Ongoing legal disputes, Wells notices, and persistent political backlash against cryptocurrencies worsen the situation. On May 29, U.S. Senators Elizabeth Warren and William Cassidy sent a letter to the Drug Enforcement Administration claiming that cryptocurrencies were increasingly instrumental in the fentanyl trade. Previously, Senator Warren received backlash for using unreliable data when discussing terrorism.
These occurrences combined with the potential effect on cryptocurrency intermediaries and possible selling pressure resulting from the Mt. Gox coin distribution do not conclusively cap Bitcoin at $70,000 or any similar amount. Whether spot ETF investors will hold their positions while U.S. debt continues to rise remains to be seen. At this point, a bearish influence seems to be controlling the market in the short term. This article is merely informative and should not be perceived as legal or investment advice. The views here are solely those of the author and not necessarily in line with Cointelegraph's views.
Published At
5/31/2024 9:31:28 PM
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