Bitcoin fell in August compared to traditional assets as the month drew to a close, weighed down by declining liquidity and ongoing concerns that governments may sell out of their cryptocurrency holdings.
According to research firm Kaiko, the US, China, UK and Ukraine are potential sources of such sales, as well as creditors who received tokens from the Mt. Gox platform that collapsed. The analysis estimates that approximately $33 billion of bitcoin supply may be discharged into the market.
Adult Bitcoin whales
Kaiko estimated that the US administration holds around 203,220 bitcoins, followed by China with 190,000, the UK with 61,200, and Ukraine with 46,350. Governments confiscate currency in criminal cases, while Ukraine is believed to have received donations to help fund its defense against the Russian invasion. Kaiko explained that ‘Mt. Gox’ has about 46,170 tokens left for distribution.
Kaiko analysts, Adam Morgan McCarthy and Dezislava Obert, noted that “oversupply anxiety has been a thorny topic in cryptocurrency markets all summer.” They added that there are several “prominent holders who may be potential sources of selling pressure in the coming months.”
Potentially huge selling concerns come alongside declining liquidity in the Bitcoin market, which could increase price volatility in the event of large trades. The cryptocurrency has fallen around 8% so far this month under these conditions, compared to gains of around 2% in global stock and bond indices.
Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors LLC, wrote in a note that “trading volumes in the Bitcoin spot market remain low, contributing to the recent volatile price movement.” He noted that seasonal trends suggest that activity usually increases after the U.S. Labor Day holiday.
One indicator noted by Farrell is the seven-day moving average of bitcoin’s trading volume, which fell about 2% after peaking near 5% during the cryptocurrency’s record rally in March.
Bitcoin struggled in August despite net inflows into Bitcoin exchange-traded funds in the US and growing expectations that the Federal Reserve will ease monetary policy in the coming weeks.
Trading in Bitcoin ETFs
Trading in the US Bitcoin ETF sector has become more challenging, according to JPMorgan Chase & Co. strategists. This is based in part on a measure known as the Hui-Huebele ratio.
The Hui-Heubel Ratio is a measure used in financial markets, especially in the context of exchange-traded funds (ETFs) and digital assets, to measure the liquidity of these financial instruments, as well as the number of trades needed to move prices.
The JPMorgan team led by Nicholas Panijerzoglo said: “Remarkably, this metric has deteriorated for all bitcoin exchange-traded funds since March, indicating a general deterioration in their liquidity over the past six months.”
The total daily trading volume of bitcoin exchange-traded funds in the United States fell to less than $2 billion after peaking at more than 10
Bitcoin is now trading at around $59,740, about $14,000 below its March peak. Other symbols such as Ethereum and Solana saw a divergence in price movement.
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