TL; DR
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Two major stories (Germany selling BTC and Mt. Gox paying back creditors) caused the market to dump, but there isn’t much liquidity left to get below current prices, so the market should stabilize in the coming week(s).
Full story
If you’ve ever seen Chevy’s Uncle Frank eat scallops, you know it’s a sight to behold.
At every turn you think, “He can’t possibly inhale another plate” – but alas, Frank always finds space… until his wife Miriam inevitably has to intervene, tell him he’s embarrassing her, and take him to the car must stagger.
Watching the crypto market dump this past week was like Frank eating scallops.
Bitcoin’s price fell below $60,000 on Thursday and then fell as low as $56,000 before bottoming out at $53.5,000 last Friday, sending the rest of the market down with it.
(And with every step down we thought: ‘It can’t get any lower’…)
Here are the stories driving the sell-off:
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The German government has started selling its ~$2.2 billion worth of Bitcoin.
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127,000 creditors are about to get back the Bitcoin they lost in the 2014 Mount Gox stock market collapse.
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Additionally, the summer months typically see periods of lull in market movements and there is still no solid statement from the Federal Reserve on when they might cut rates.
This is the opportunity that is being taken:
The big dogs who have the wealth to move markets (aka “market makers”) recognize the sales events these stories are likely to trigger, and choose to amplify them (if there is money to be made).
The money to be made here is mainly in the loans people took out to buy more crypto, when Bitcoin reached ~$56,000 a few months ago – and once prices started dropping below $60,000, they saw their opportunity.
Because when market makers sell massive amounts of Bitcoin, they can help to:
Push prices down → force the repayment of these loans → forcing people to sell their Bitcoin → causing prices to drop even further.
…at which point market makers can buy in at deeply discounted prices.
(This is known as a ‘liquidity sweep’).
It’s a complex method of ‘buy low and sell high’, and as complicated as it is, it works!
Good news is:
There is not much liquidity (loans) left that can be swept below the current price.
So the market should stabilize over the next week(s) and hopefully start to recover.