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Market Update: Bitcoin and its impact on the market

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Since Monday, July 1st, the broader digital assets market has experienced a retracement, with Bitcoin decreasing from around $64,000 to a low of approximately $53,500. Bitcoin, the industry's flagship, influences the entire market with its price movements. Over the past 113 days, Bitcoin has been moving sideways with low volatility.

We were expecting volatility to return, and unfortunately, it has been to the downside. Higher timeframe indicators suggested this might happen, and we are now waiting for confirmation to act accordingly and reposition the fund. We will highlight the developments that caused this decline and share our outlook for the coming months.

Fear dominates the market

Throughout the past two months, fear has slowly entered the market as US economic data continued to disappoint, hinting that the Federal Reserve, the US central bank, would likely only cut the interest rate twice instead of three times. This negatively affects risk assets and digital assets a little bit more due to their emerging nature. This caused investors to opt for a more risk-off approach, causing the market to decrease in June.

This fear was strengthened by the news that the collapsed cryptocurrency exchange Mt.Gox would start repaying its creditors 140,000 Bitcoin in July. The exchange collapsed after a hack in 2014, consequently, these creditors have waited for ten years to receive their funds. Furthermore, as 140,000 Bitcoin is 0.7% of the circulating supply, many expected increased selling pressure.

Then on the 4th of July, a wallet linked to the German government started to send multiple big transfers to exchanges and other wallets, worth over $172 million. Over the past decade, the German government has confiscated Bitcoin related to criminal operations, these are later sold. As these transactions were public, many feared that selling pressure would increase even more.

Liquidation Wave

As these developments unfolded, traders and investors started to sell their holdings to avoid this selling pressure and potential price decrease. This triggered a snowball effect, causing the price to drop rapidly and prompting further sales. Over $222 million in Bitcoin long positions were liquidated within 24 hours, with a total of over $580 million in positions liquidated as Bitcoin's price fell. This liquidation event is very healthy for the market, as it acts as a reset where leveraged bets are now being cleared. The market followed Bitcoin's decline, with some assets dropping over 25% within the week.

What’s Next?

Bitcoin is currently stabilizing around $54,500, a level we expect it to hold before initiating its upward trend again. Although it's quite unpleasant, it's not uncommon for Bitcoin and other digital assets to experience corrections of up to 20% even in a bull market. We witnessed this in the cycles of 2017 and 2021. This recent retracement was caused by fear and its snowball effect, but the fundamentals have remained the same. Additionally, the market is still eagerly anticipating the Ether ETF, which many expect to have a successful launch.

Although July can be a difficult time for the market due to persistent selling pressure, market sentiment can switch quickly from fear to greed. We've already observed that prices can rapidly increase with positive news, such as the application for the Solana ETF. Despite the current unpleasantness, we expect this move to be a short retracement and anticipate an upward trend soon.

 

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