Bitcoin’s Attempt at Modest Gains Falters, Plunging Below $62,000
Bitcoin, the largest cryptocurrency, experienced a rapid decline from $65,000 to below $62,000, triggering significant liquidations totaling $290 million in long and short positions within a 24-hour period.
The Impact of Market Sentiment Shifts
The initial optimism following the Federal Open Market Committee (FOMC) meeting and positive July Consumer Price Index (CPI) data quickly dissipated when the anticipated rate cut was postponed until September. This shift in market sentiment led to a bearish turn in the cryptocurrency market.
Bond yields and the dollar plummeted after weak U.S. jobs data for July. While such conditions typically favor risk assets like stocks and Bitcoin, the recent environment was one of widespread risk aversion. Bitcoin initially rose above $65,000 but succumbed to the prevailing negative sentiment, falling below $62,000.
Market Turmoil and Liquidations
Genesis Trading’s massive transaction involving over $1.5 billion in Bitcoin and Ethereum led to a 2.2% drop in Bitcoin and a 2.5% drop in Ethereum in just one hour. This activity, aimed at providing repayment to creditors, exacerbated the bearish momentum in both mainstream and emerging digital assets.
During this period of market upheaval, Bitcoin faced the brunt of liquidations, totaling $87.27 million. Ethereum and Solana followed with $80.21 million and $20.86 million liquidated, respectively.
Supply Shocks and ETF Outflows
Various supply shocks in the cryptocurrency market, including the German government’s sale of 50,000 Bitcoins and the distribution of assets from the bankrupt Mt. Gox exchange, added downward pressure. Moreover, looming sales of hidden Bitcoin assets by the US government further contributed to the market turmoil.
Outflows from Bitcoin exchange-traded funds (ETFs) added another layer of complexity to the market, with a total net outflow of $237 million on August 2. Notably, Grayscale ETF GBTC and Fidelity ETF FBTC experienced significant daily net outflows, further impacting market dynamics.
