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⚡Bitcoin Aims to Bounce Back⛹️

Croxroad

02 Jul 2024 — 5 min read

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🚓 Bitcoin's Path to Recovery

Short-term holder wallets are currently in the red and may look to liquidate near their breakeven level of $65,000. In contrast, long-term holder wallets, with an average cost of less than $20,000, are incentivized to hold or even boost their coin stash. As Bitcoin (BTC) looks to recover from the July loss, new challenges loom, with on-chain data suggesting potential resistance at $65,000. The leading cryptocurrency by market value traded nearly 1% higher at $63,200 as of writing, attempting to regain some poise after ending June with a 7% loss. June's drop, which reversed May's upswing, was mainly driven by miner selling and concerns that ETF inflows represent non-directional arbitrage bets rather than outright bullish bets.

Notably, the decline has pushed prices well below the widely tracked aggregate cost basis of short-term Bitcoin holders, or wallets holding coins for 155 days or less. As of writing, the aggregate cost basis for short-term holders was $65,000, according to data from LookIntoBitcoin. On-chain analytics firms consider the realised price as the aggregate cost basis, reflecting the average price at which coins were last spent on-chain. In other words, short-term holders now face losses or hold positions in the red and could attempt to exit the market at a loss or breakeven, potentially adding to selling pressure near $65,000. Analysts at Blockware Intelligence noted, "The price of Bitcoin has fallen below the aggregate cost basis of short-term holders for the first time since August 2023. In the short-term, we should expect some resistance around the ~$65,000 level as short-term market speculators may look to exit their positions at a 'breakeven' level."

Meanwhile, long-term holder wallets are strongly incentivized to maintain or boost their coin stash, as their average cost is less than $20,000, according to LookIntoBitcoin. Their average cost basis is nearly 70% less than Bitcoin's current market price. Additionally, Bitcoin's 15% price pullback from the record high of over $73,500 in March may appear substantial for traditional market investors but is a normal bull market correction for long-term crypto holders. Blockware noted, "During the 2017 cycle, BTC had 10 drawdowns of 20% or more. This is a normal, healthy, bull market correction. Bitcoin’s price volatility shakes out weak hands and provides opportunities for strategic capital deployment to those with a longer time horizon."

➰ Mt. Gox Payouts Loom

In a pivotal development for the cryptocurrency world, the long-awaited payout from bankrupt Tokyo-based bitcoin exchange Mt. Gox is set to commence, potentially injecting nearly $9 billion worth of bitcoin and bitcoin cash back into the market. After a decade-long saga following the exchange's collapse due to substantial hacks that saw the loss of up to 950,000 bitcoins, creditors numbering around 20,000 will finally begin receiving their restitution in early July. This moment marks a significant milestone for those who have patiently awaited compensation amidst a complex and protracted legal process.

However, the impending influx of approximately 141,000 bitcoins — about 0.7% of the total bitcoin supply — has stirred concerns among market analysts. As the news broke, Bitcoin experienced a sharp decline to $59,000, marking one of its steepest weekly drops of the year. Experts predict that the distribution of these assets could exert further downward pressure on Bitcoin prices, as recipients may opt to sell their holdings to realise gains accumulated over the past decade.

John Glover, Chief Investment Officer at Ledn, emphasised the potential impact, noting that many Mt. Gox creditors might choose to cash out, viewing their recovered assets as a significant windfall after years of uncertainty. James Butterfill, Head of Research at CoinShares, echoed these sentiments, highlighting the longstanding apprehension surrounding the market implications of such a substantial release of bitcoins.

Mt. Gox's saga serves as a cautionary tale within the cryptocurrency community, illustrating the challenges of security and trust faced by digital asset exchanges. As the distribution begins, all eyes remain on the market's reaction and the subsequent movements in Bitcoin prices, reflecting both the resilience and volatility inherent in the cryptocurrency landscape.

❓ Why Mine Bitcoin?

People invest time and money in mining Bitcoin primarily for the rewards, which have become very valuable over time. For instance, on March 8, 2024, Bitcoin's price reached $70,000, making the reward of 6.25 bitcoins worth $426,781.25. The rewards for mining are halved every four years, reducing from 50 BTC per block in 2009 to an expected 3.125 BTC in April 2024. As the supply of new bitcoins diminishes, miners are motivated to earn as many as possible before new coin creation stops around 2140. After this point, transaction fees will be the main incentive for mining, though this may not be enough to keep many miners engaged unless fees increase significantly.

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