Bitcoin's (BTC +0.30%) price rose by nearly 50% in the first half of 2024. Three main catalysts fueled that rally: the Securities and Exchange Commission's approval of the first spot-price Bitcoin exchange-traded funds (ETFs) in January; the halving in April, which cut mining rewards in half and slowing the growth in supply on new coins; and investors' hopes that the Federal Reserve would start cutting benchmark interest rates.The rally was helped by bullish price forecasts, such as the prediction by Ark Invest's Cathie Wood that a single Bitcoin would be worth $1.5 million by 2030.
But over the past month, Bitcoin's price has declined by about 20% as it faced two major headwinds: the long-awaited disbursement of bitcoins from the failed cryptocurrency exchange Mt. Gox, and the German government's liquidation of thousands of bitcoins it seized from the movie piracy operation Movie2k. Should investors buy Bitcoin after this steep pullback?
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Will Mt. Gox's customers quickly liquidate their recovered holdings?
Years ago, Mt. Gox was one of the world's top cryptocurrency exchanges, but it lost as many as 950,000 bitcoins in a series of hacks that started in 2011. Those bitcoins were only worth about $285,000 at the beginning of 2011, but they're worth $53.6 billion today.
The extent of those security breaches wasn't fully revealed until 2014, at which point Mt. Gox abruptly shut its exchange and filed for bankruptcy. In the subsequent decade, the exchange recovered 140,000 of its lost bitcoins, which are worth about $7.9 billion today, and this month, it has finally started repaying about 20,000 of its creditors in Bitcoin and Bitcoin Cash (a spin-off altcoin of the cryptocurrency).
Bitcoin was only trading at about $600 when Mt. Gox collapsed, but its price has risen by more than 9,200% to about $56,000 during the past decade. Therefore, Mt. Gox's creditors might be tempted to liquidate a large portion of the Bitcoin they are finally recovering -- and fear of those sales is driving down its price. But the entire $7.8 billion payout represents less than 1% of Bitcoin's market cap of $1.1 trillion, so those concerns don't really appear to justify the 20% decline over the past month on their own.
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Will the German government exacerbate that selling pressure?
In 2013, German authorities shut down the movie piracy site Movie2k and seized nearly 50,000 bitcoins in that bust. That haul is now worth about $2.8 billion.
The German government recently transferred a large portion of those coins to cryptocurrency exchanges and sold roughly 9,500 bitcoins in two big transactions. It's still holding more than 40,000 bitcoins, according to Arkham Intelligence, and investors are concerned it will liquidate even more tokens in the near future.
Justin Sun, the controversial founder of the decentralized blockchain operating system TRON, recently offered to buy most of the German government's remaining Bitcoin holdings in a $2.3 billion off-market transaction to mitigate the sale's impact on the market price. It's unclear if the German government will agree to that offer, but it shows that some major crypto investors are getting concerned about a panic-inducing liquidation. Yet a $2.3 billion sale would only equal about 0.2% of Bitcoin's market cap -- so it seems like a lot of sound and fury that doesn't really signify anything for long-term investors.
The dip looks like a buying opportunity
In the first half of the year, the spot ETF approvals and halving were major events with the potential to significantly boost the market's demand for Bitcoin. But as we gaze into the second half of the year, we see fewer near-term catalysts -- so many investors are likely focusing more on the near-term headwinds like Mt. Gox and the German government.
I'm still bullish on Bitcoin's future and think its latest pullback represents a good buying opportunity for long-term investors. Its price could remain volatile, but patient investors who aren't obsessed with its potential liquidations could be well rewarded over the next few decades.
