Large Bitcoin Holders Seen as Possible Sellers Cause Anxiety in Crypto Market
Bitcoin is underperforming traditional assets as August comes to a close, facing challenges from decreasing liquidity and concerns about potential government sales of the cryptocurrency stockpiles. According to research firm Kaiko, the US, China, UK, and Ukraine are among the potential sources of such sell-offs, with a projected $33 billion worth of Bitcoin supply overhang. Kaiko’s analysis indicates that the US government holds around 203,220 Bitcoin, followed by China with 190,000, the UK with 61,200, and Ukraine with 46,350. These holdings include tokens seized in criminal cases and donations received by Ukraine for defense purposes, along with tokens from the collapsed Mt. Gox exchange.
Kaiko analysts Adam Morgan McCarthy and Dessislava Aubert highlighted the ongoing discussions in the crypto markets surrounding the supply overhang, noting that several major holders could potentially exert selling pressure in the upcoming months. Bitcoin experienced a 2.9% decline to $57,800 on Friday, falling $16,000 below its March peak, while other tokens like Polygon and Solana saw even larger drops, each declining by over 5%.
The concerns about substantial sell orders coincide with a decrease in Bitcoin market liquidity, which can amplify price fluctuations in response to significant trades. Amidst this environment, Bitcoin has declined by about 10% this month, contrasting with the approximately 2% gains seen in global stock and bond indices. Sean Farrell, head of digital-asset strategy at Fundstrat Global Advisors LLC, pointed out that spot market volumes for Bitcoin remain subdued, contributing to recent erratic price movements. He mentioned that seasonal trends suggest increased activity following the US Labor Day holiday.
Despite net inflows into US spot-Bitcoin exchange-traded funds and expectations of potential monetary policy easing by the Federal Reserve, Bitcoin has faced challenges in August. The trading environment for US Bitcoin ETFs has also become more demanding, as highlighted by JPMorgan Chase & Co. strategists. They noted a deterioration in liquidity for spot-Bitcoin ETFs based on the Hui-Heubel ratio, which measures the number of trades required to impact prices. Data compiled by Bloomberg indicates that combined daily trading volume for US Bitcoin ETFs has decreased to less than $2 billion from a peak of over $10 billion in March.
In conclusion, Bitcoin’s performance in August has been impacted by liquidity concerns, potential government sell-offs, and challenges in the US Bitcoin ETF sector, reflecting a complex landscape for the cryptocurrency market.
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