Why is Bitcoin Dropping Below $60,000 Amid a $9 Billion Scandal?

In recent weeks, both the stock and cryptocurrency markets have faced considerable volatility. Nvidia's decline, following the 'Three Witch Days' adjustment, has impacted the Nasdaq, while the cryptocurrency market, including Bitcoin, has seen significant corrections. This article delves into the factors influencing these trends, including the developments in Mt. Gox bankruptcy case and the broader implications for investors.

Nvidia and the Triple Witch Days Adjustment

The Triple Witch Days refers to the simultaneous expiration of stock options, stock index futures, and stock index options, which can lead to increased market volatility. This phenomenon typically occurs on the third Friday of March, June, September, and December, and can cause significant movements in stock prices as traders adjust their positions.

Since being caught in the Triple Witch Days adjustment last week, Nvidia's stock has continued to fall. This decline has had a broader impact on the Nasdaq, contributing to overall market turbulence. Nvidia, a key player in the tech industry, has faced challenges due to fluctuating demand for its products and broader economic concerns, exacerbating the effects of market adjustments.

Cryptocurrency Market Correction

Bitcoin's Price Decline

As of Monday's closing, the price of Bitcoin fell to $59,191.39, hitting a new low since early May. Bitcoin has fallen 12% this month so far. Despite this, compared to the price below $43,000 at the end of last year, Bitcoin is still at a high level in 2024. This correction highlights the volatile nature of the cryptocurrency market, where prices can shift rapidly in response to various factors.

Factors Leading to Correction

Multiple factors have led to the current market trend. Ilan Solot, a senior global market strategist at London financial firm Marex Solutions, pointed out that news of German authorities selling Bitcoin seized from criminal activities, as well as the news that the bankrupt exchange Mt. Gox will begin repaying Bitcoin to creditors, could increase market supply pressure. These events have created uncertainty and contributed to the decline in Bitcoin's price.

Mt. Gox Bankruptcy Case

Background on Mt. Gox

The latest development in the Mt. Gox bankruptcy case is particularly noteworthy. This exchange was hacked multiple times between 2011 and 2014, resulting in a large amount of lost Bitcoin, and eventually went bankrupt in 2014. The collapse of Mt. Gox was a significant event in the history of cryptocurrencies, highlighting vulnerabilities in the security of early exchanges.

Repayment to Creditors

After nearly a decade of waiting, Mt. Gox will begin returning Bitcoin to customers in July 2024. Although the specific quantity has not been determined, it is estimated to be between 65,000 and 140,000 Bitcoins. Calculated at the current price, the maximum value could reach nearly $9 billion. This repayment process is closely watched by investors, as the release of such a large amount of Bitcoin could impact the market significantly.

Market Impact

This large-scale supply will soon enter the market, causing investors to worry about a price drop. Some media outlets have pointed out that the additional Bitcoin supply is equivalent to more than half of the inflow into ETFs. The anticipated influx of Bitcoin from Mt. Gox is creating apprehension about potential selling pressure, which could drive prices down further.

Bitcoin Spot ETF and Market Dynamics

Bitcoin Spot ETF Inflows

Since the Bitcoin spot ETF began trading on January 11, its net inflow has exceeded $14.5 billion, and it is considered one of the main factors driving the significant rise in Bitcoin prices. The ETF has provided a more accessible way for institutional investors to gain exposure to Bitcoin, contributing to increased demand and higher prices.

Potential Overestimation of Selling Pressure

However, Alistair Milne, Chief Investment Officer of Altana Digital Currency Fund, believes that the selling pressure on Bitcoin caused by the Mt. Gox incident may be overestimated. He emphasized on Twitter that those creditors of Mt. Gox, who urgently needed funds, had ten years to sell their claims, and those who still hold on to their claims will not be in a hurry to sell Bitcoins. This perspective suggests that the market may not experience as much downward pressure as some fear.

Reevaluation of Cryptocurrencies

Attractiveness Compared to Other Investments

Analysts point out that in addition to the risk of increased supply, the deeper reason for the correction in Bitcoin may be that investors are reassessing the attractiveness of cryptocurrencies compared to other investment products. Ilan Solot believes that in the current cycle, cryptocurrencies may not be able to provide sufficient risk-return ratios compared to technology stocks. As a result, some investors may be shifting their focus away from cryptocurrencies in favor of more stable investments.

Broader Market Trends

The reevaluation of cryptocurrencies is part of a broader trend where investors are becoming more discerning about their investment choices. Factors such as rising interest rates, inflation concerns, and geopolitical uncertainties are influencing investment decisions, making some assets more attractive than others.

Conclusion

Both Nvidia's decline and the ongoing corrections in the cryptocurrency market highlight the interconnected nature of global financial markets. As investors navigate these changes, understanding the underlying factors and market dynamics is crucial. Staying informed and adaptable can help investors manage risk and capitalize on opportunities in a volatile environment.