Bitcoin prices suffered some weakness today, dropping to their lowest since mid-October, as market observers cited several factors as potentially triggering these declines.
The world’s most prominent digital currency depreciated to $55,460.96 today, according to CoinDesk data.
At this point, the cryptocurrency was trading at its lowest since October 13, additional CoinDesk figures show.
In addition, it was down close to 20% from the all-time high of nearly $69,000 it reached earlier this month.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Multiple Bearish Factors
When explaining the digital currency’s latest downward movement, analysts pointed to numerous variables as possibly fueling these losses.
“I don’t think there’s any single catalyst that’s pushing Bitcoin prices lower this week,” said John Iadeluca, founder & CEO of multi-strategy fund Banz Capital.
“There’s been movement of Bitcoin from extremely old wallets that has spurred rumors. In my opinion though, Bitcoin’s price decline this week is a culmination of rising selling pressure, end of year profit-taking, as well as speculation,” he stated.
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When asked to elaborate on what he meant by “speculation,” Iadeluca emphasized that many market observers are trying to figure out “what the movement of Bitcoin from the old wallets means, and whether this indicates large sales of Bitcoin made from these wallets in the near future.”
Mt. Gox Concerns
Multiple analysts spoke to the impact that the ongoing Mt. Gox situation could have had on the price of bitcoin.
As a result, creditors of the now-defunct exchange will receive more than 140,000 units of bitcoin, which is worth more than $7 billion, according to CoinDesk price data.
If these creditors sell their holdings, it would place downward pressure on the price of bitcoin, potentially fueling significant declines.
Andrew Rossow, an internet and technology attorney, claimed that these developments are already affecting the digital currency.
“I am very confident that due to the Rehabilitation Trustee beginning to make (re) payments to creditors, this is driving up the Crypto Fear & Greed Index, causing market sentiment to go down with respect to Bitcoin’s market price,” he stated.
“What this demonstrates is while the details of Mt. Gox’s rehabilitation plan have been generally known to the public and investors for some time, consumer and investor behavior shows fear to still be the driving factor for Bitcoin’s price,” Rossow added.
“Fear is what pushes it lower, but also fear pushes it higher – I believe the fear from Mt. Gox is what dropped the price,” he stated.
Iadeluca also claimed that the Mt. Gox situation has been looming over investors.
“Yes, I think the Mt. Gox situation has played a hand in adding downward pressure on Bitcoin prices recently,” he stated.
“Regardless of whether the situation proves to be catastrophic or not, it seems to be provoking market FUD.”
Dylan LeClair, head of market research for Bitcoin Magazine, offered a more skeptical take on the matter.
“The headlines recently from the Mt.Gox trustee’s dispute may have had some market impact due to headline traders marginally,” he stated.
“Some of the creditors have said they do not expect to get their claims resolved until 2023, as well as some of the claims have been already acquired by hedge funds,” LeClair added.
“Mt.Gox news is more headline grabbing than market moving in our opinion.”
LeClair claimed that the rising value of the U.S. dollar, relative to other fiat currencies, has contributed to the recent losses in bitcoin prices.
“When viewing what is occurring in legacy markets with the DXY, which measures the value of a dollar relative to other fiat currencies, there has been a continued strengthening throughout 2021, and this is a potential catalyst for a risk off move across all global markets,” he stated.
Dollar strength “has played a part, at least marginally,” in causing risk-off selling, which has in turn helped push bitcoin prices lower, the analyst said.
“$BTC is BTC/USD, and when the denominator is strengthening relative to other foreign currencies, investors have to sell dollar denominated assets to cover denominated dollar denominated liabilities,” LeClair noted.
Rossow also commented on this matter.
“The DXY price index certainly has an impact on Bitcoin’s price. The difficulty here, however, is identifying the exact factors that drive growth and decline, making it challenging for a clear relationship to be identified as between DXY and Bitcoin’s price.”
“If we are going off past behavior, there seems to be a negative correlation between the price of Bitcoin and the DXY – meaning, as the U.S. dollar rises in price, Bitcoin’s price will very likely crash due to it possibly not being equally represented in traditional portfolios.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.