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Multiple factors are contributing to the decline in bitcoin prices.
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Analysts’ expectations for the near future are mixed.
Bitcoin (BTC) opened lower on Thursday, August 15. As of this publication, the price has dropped nearly 5% over the past 24 hours.
Consequently, bitcoin is nearing the same price it was at just 7 days ago, effectively negating any weekly gains.
This decline is illustrated in the price chart below:
One explanation for these bitcoin price drops may be the performance of spot ETFs that are traded on the US stock market.
On August 13, these financial instruments collectively experienced a negative day, with net capital outflows from bitcoin ETFs amounting to $81 million.
As described in the Cryptopedia (the educational section of CriptoNoticias), Spot ETFs are supported by the underlying asset—in this case, Bitcoin. Investment fund management companies must hold BTC in their reserves (or in the reserves of designated third parties) to back the ETFs.
This means that the behavior of bitcoin ETF investors can have a direct impact on the price of the digital currency. If demand is high, ETF managers need to buy BTC in the market to support the funds. Conversely, if demand decreases, management companies can sell bitcoin to fulfill requests from investors who want to withdraw either partially or entirely.
The following chart, provided by SoSoValue, illustrates how bitcoin ETFs have performed on a daily basis:
Interestingly, the ETFs for ether (ETH), the cryptocurrency of the Ethereum network, experienced low net capital flows yesterday but still saw positive flows amounting to $10 million.
Another factor contributing to the price decline is that the US government appears to be selling bitcoin it had previously confiscated. CriptoNoticias reported yesterday that 10,000 BTC from the Silk Road case were transferred to the Coinbase exchange.
According to a notification from Arkham Intelligence, an on-chain analysis firm, this transfer was valued at just over $590 million and originated from a wallet associated with the US government, going to a Coinbase Prime service deposit wallet.
While this amount is not large compared to, for instance, 50,000 BTC sold by Germany or the 140,000 BTC currently being distributed by Mt. Gox, it indicates that the current US administration has little interest in holding onto bitcoin. This can lead to market distrust.
It is also important to note that the bankrupt exchange Mt. Gox has not finished distributing bitcoin to its creditors. According to on-chain data, it still has 46,000 BTC left to distribute, which could exert downward pressure on the digital currency if those who receive them decide to sell en masse.
As an additional bearish factor affecting not only bitcoin but all financial markets, one can mention the ongoing tensions in the Middle East, which are escalating amid threats and warnings between Iran and Israel.
The Iranian government has stated that it will not back down from its stance and does not require any authorization to use weapons against its adversary. In response, the United States has warned that Iran might attack Israel this week.
In such situations, investors tend to be cautious and prefer assets deemed safe, such as gold, Treasury bonds, or cash. Consequently, bitcoin, along with cryptocurrencies and stocks, is likely to suffer.
Expectations of High Volatility for Bitcoin
CriptoNoticias reported yesterday that the only certainty regarding bitcoin these days is the high volatility. Clearly, the analysis was correct.
Several analysts are starting to share their predictions. The Spanish trader known on social media as SantinoCripto, for example, expresses having “bad feelings.” Despite still holding bullish expectations and predicting that bitcoin will strive for new historical highs in 2024 or 2025 (according to him, exceeding $120,000), he doesn’t dismiss the possibility that the situation might not be as optimistic as he envisions.
For SantinoCripto, “both at the geopolitical level, as well as concerning bitcoin, cryptocurrencies, and the rest of the financial markets,” two challenging years lie ahead.
“I think they are preparing for something significant that could lead to a historic crash in the economy and at the geopolitical level. I hope it does not escalate into wars, but the atmosphere is very tense; the Ukraine-Russia and Israel-Iran conflicts could involve superpowers like the US and China.”
SantinoCripto, cryptocurrency trader.
Michaël Van de Poppe, another expert in financial markets, downplays the recent price declines. He believes that inflation data in the United States favors a potential cut in interest rates (which could happen in September). According to him, this will increase the chances of bullish movements in bitcoin prices.
Analysts from Grayscale, a fund management company that includes bitcoin and ether ETFs, also hold bullish predictions. They assert that this year, Bitcoin will reach new historical highs in its valuation.
In situations like this, where opinions are so divided, a DCA strategy could be beneficial for investors who maintain long-term bullish expectations for bitcoin.
Bitcoin Price Drop: Key Factors and Analyst Predictions
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Several factors are adding up to push the price of Bitcoin down.
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For the near future, analysts’ expectations are divided.
Bitcoin (BTC) opened lower on Thursday, August 15, experiencing a notable decline. As of publication, the price fell by nearly 5% in the last 24 hours.
Currently, Bitcoin’s price is approaching the same level it was at just a week ago, effectively erasing all weekly profits.
Bitcoin price over the past 7 days. Source: CoinGecko.
Several factors contributing to the current Bitcoin price decline include the performance of spot ETFs traded on the US stock market. On August 13, Bitcoin ETFs experienced a negative day overall, leading to net capital outflows of approximately $81 million.
Spot ETFs are financial products backed by an underlying asset—in this case, Bitcoin. Investment management companies must maintain BTC in reserve to support these funds. Therefore, Bitcoin ETF demand can directly influence Bitcoin’s market price. Increased demand requires buying more BTC, while decreased interest may force management firms to sell Bitcoin to accommodate withdrawals.
The chart below illustrates the day-by-day performance of Bitcoin ETFs:
Money flow into and out of Bitcoin ETFs, day by day. Source: SoSoValue.
Interestingly, Ethereum (ETH) ETFs reported a positive inflow of $10 million on the same day, contrasting with Bitcoin’s situation.
Another critical factor in Bitcoin’s recent downturn is the sale of confiscated Bitcoin by the US government. On August 14, approximately 10,000 BTC, valued at over $590 million, was sent to the Coinbase exchange—an action that raises concerns among investors regarding government intentions about Bitcoin ownership.
The transfer of 10,000 BTC to Coinbase Prime was made on August 14. Source: Arkham Intelligence.
Additionally, the bankrupt exchange Mt. Gox has not fully distributed its Bitcoin to creditors, with still 46,000 BTC pending distribution. This situation could further exert downward pressure on Bitcoin’s price if numerous creditors decide to liquidate their holdings.
Geopolitical tensions also play a significant role in affecting investor sentiment. Heightened tensions in the Middle East, particularly between Iran and Israel, could lead investors to seek traditional safe-haven assets, thereby negatively impacting Bitcoin and equities.
Tensions rise in the Middle East. Source: stock.adobe.com
High Volatility Expectations for Bitcoin
According to recent analysis, the only constant in Bitcoin’s near future is high volatility. While many analysts present their forecasts, the sentiment remains mixed.
For instance, prominent trader SantinoCripto expresses concerns but maintains a bullish long-term perspective, suggesting Bitcoin might hit new all-time highs surpassing $120,000 by 2024 or 2025. However, he warns of challenging times ahead as geopolitical issues compound market uncertainties.
“I think they are preparing something big that will cause a historic crash in the economy and at the geopolitical level. I hope it does not lead to wars, but the atmosphere is very heated.” — SantinoCripto
Michaël Van de Poppe points to positive inflation data from the US and suggests that anticipated interest rate cuts could increase the probability of bullish market behavior for Bitcoin, contributing to a potential rebound.
Grayscale analysts also express optimism for Bitcoin’s future, claiming that the digital currency is on track to achieve new historical highs this year.
| Factors Influencing Bitcoin Price | Impact |
|---|---|
| Spot ETF Performance | Negative outflows leading to selling pressure |
| U.S. Government Bitcoin Sales | Increased market supply |
| Mt. Gox Distrubution | Potential liquidations by creditors |
| Geopolitical Tensions | Investor flight to safety |
In such uncertain times, employing a Dollar Cost Averaging (DCA) strategy can be beneficial for investors who are optimistic about Bitcoin’s long-term potential. By regularly investing a fixed amount, investors can mitigate the impacts of volatility and build their positions progressively over time.
