Cryptocurrencies

Bitcoin (BTC) saw a 6.7% decline after almost hitting 72,000

Bitcoin (BTC) saw a 6.7% decline after nearly hitting $72,000 on May 21, settling at $67,100. This drop does not necessarily indicate a downward trend, since Bitcoin is still only 8.7% below its all-time high. However, investors are wondering why recent inflows into Bitcoin exchange-traded funds (ETFs) have not sparked more bullish sentiment.

Asset distribution through bankrupt real estate company Mt.Gox Exchange

Data from Farside Investors reveals net inflows of $1.96 billion into US Bitcoin ETFs since May 15, equivalent to 64 days of BTC issued by miners. Notably, the US spot Bitcoin ETF market has now surpassed $50 billion in assets under management. For comparison, U.S. gold ETFs hold about $118.5 billion, according to the World Gold Council.

Additionally, inflows into spot bitcoin ETFs typically lead to withdrawals of bitcoin from exchanges, which fell to their lowest level since March 2018 – 2.3 million bitcoins, according to Glassnode data.

Accumulation of Bitcoin balances on exchanges, BTC. Source: Glassnode

While there is no certainty that these coins will be sold in the near term, moving them to cold storage and custodians outside of exchanges generally reduces market liquidity. This problem becomes more pronounced in bull markets, where lower order books at higher price levels can amplify price movements due to heavy buying.

Therefore, if institutional investors continue to acquire Bitcoin via ETFs as the price continues to fall, selling pressure will likely arise from regular spot markets. The movement of 141,686 BTC by the bankrupt Japanese exchange Mt.Gox on May 28 appears to indicate an imminent distribution of assets to its creditors, ahead of the planned October 31 deadline.

More than $9.4 billion in bitcoin is owed to approximately 127,000 Mt.Gox creditors, who have been waiting for more than a decade since the stock market collapsed in 2014 due to multiple hacks. Despite the short-term negative impact on the price of Bitcoin, Andy Lien, an international government blockchain expert, believes that paying off this debt will solve a long-term problem and permanently eliminate the associated uncertainty.

Regulatory uncertainty and the anti-crypto lobby

Regulatory uncertainty in the United States is one of the reasons why Bitcoin holders are cashing out over $67,000. The United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission have filed lawsuits against major exchanges and brokers, including Binance, Coinbase, Kraken, KuCoin, and Robinhood.

Additionally, the U.S. Department of Justice has filed charges against the founders of Tornado Cash and the developers of Samourai Wallet for money laundering, as well as against Roger “Bitcoin Jesus” Ver for allegations of tax evasion and fraud dating back to at seven years old. Although these events do not directly impact Bitcoin, they distort the image of the sector, making it less attractive to institutional investors.

about: 3 Strong Bitcoin Indicators Predict Bitcoin Price to Rise to $75,000 in June

This problem extends well beyond the United States. For example, Hong Kong’s Securities and Futures Commission has issued an ultimatum to cryptocurrency exchanges that have not yet registered to operate in the territory. As of May 31, only 18 exchanges had applied for a license, with major players such as OKX, Huobi and Gate canceling it due to strict regulatory requirements imposed by Hong Kong.

In addition to ongoing legal challenges and advice from Wales, there is an ongoing political backlash against cryptocurrencies. On May 29, U.S. Senators Elizabeth Warren and William Cassidy wrote to the Drug Enforcement Administration, saying cryptocurrencies were “playing an increasingly significant role” in the fentanyl trade. Senator Warren has previously been criticized for using unreliable data in discussions about terrorism.

These factors, combined with the potential impact on cryptocurrency brokers and potential selling pressure from Mt.Gox coin distribution, do not impose a specific upper limit on Bitcoin at $70,000 or levels similar. It remains to be seen whether cash investors in ETFs will maintain their positions as U.S. debt continues to rise. Currently, the market appears to be under bearish control in the short term.

This article is intended for general information purposes and is not intended and should not be relied upon as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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