Bitcoin
With a 20% drop in a month, is it still worth buying Bitcoin?
Investors are concerned about two short-term hurdles for the cryptocurrency.
Bitcoin‘s (BTC 2.96%) the price has surged nearly 50% in the first half of 2024. Three main catalysts have fueled this rally: the Securities and Exchange Commission’s approval of the first spot-priced Bitcoin exchange-traded funds (ETFs) in January; the halving in April, which cut mining rewards in half and slowed the growth of new coin supply; and investors’ hopes that the Federal Reserve would begin cutting benchmark interest rates. The rally has been aided by bullish price forecasts, such as Ark Invest’s Cathie Wood’s prediction that a single Bitcoin would be worth $1.5 million by 2030.
But over the past month, Bitcoin’s price has fallen by about 20% as it has faced two major headwinds: the long-awaited disbursement of bitcoins from the bankrupt cryptocurrency exchange Mt. Gox, and the German government’s liquidation of thousands of bitcoins seized from the movie piracy operation Movie2k. Investors should buy Bitcoin after this strong retraction?
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Will Mt. Gox customers quickly liquidate their recovered assets?
Years ago, Mt. Gox was one of the world’s leading cryptocurrency exchanges, but it lost around 950,000 bitcoins in a series of attacks that began in 2011. Those bitcoins were worth only around $285,000 at the beginning of 2011, but today they’re worth $53.6 billion.
The extent of these security breaches wasn’t fully revealed until 2014, when Mt. Gox abruptly shut down its exchange and filed for bankruptcy. Over the next decade, the exchange recovered 140,000 of its lost bitcoins, worth about $7.9 billion today, and this month, it finally began paying off about 20,000 of its creditors in bitcoin and bitcoin cash (an altcoin derived from the cryptocurrency).
Bitcoin was trading at just around $600 when Mt. Gox collapsed, but its price has risen more than 9,200% to around $56,000 over the past decade. So Mt. Gox creditors may be tempted to liquidate a large portion of the Bitcoin they’re finally recovering — and fear of those sales is driving its price down. But the entire $7.8 billion payout represents less than 1% of Bitcoin’s $1.1 trillion market cap, so those concerns don’t really seem to justify the 20% decline over the past month on its own.
Will the German government increase this selling pressure?
In 2013, German authorities shut down the movie piracy website Movie2k and seized nearly 50,000 bitcoins in the operation. That loot is now worth an estimated $2.8 billion.
The German government recently transferred a large portion of these coins to cryptocurrency exchanges, selling approximately 9,500 bitcoins in two large transactions. It is still holding more than 40,000 bitcoins, according to Arkham Intelligence, and investors are worried that 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 remaining Bitcoin holdings from the German government in a $2.3 billion off-market transaction to mitigate the impact of the sale on the market price. It’s unclear whether the German government will agree to this offer, but it does show that some large crypto investors are becoming concerned about a panic-inducing sell-off. However, a $2.3 billion sale would only amount to about 0.2% of Bitcoin’s market cap — so it seems like a lot of sound and fury that doesn’t really mean anything to long-term investors.
The dip looks like a buying opportunity
In the first half of the year, spot ETF approvals and the halving were important events that had the potential to significantly increase market demand for Bitcoin. But as we look toward the second half of the year, we see fewer short-term catalysts — so many investors are likely focusing more on short-term headwinds like Mt. Gox and the German government.
I am still optimistic I’m very cautious about Bitcoin’s future and I think its latest pullback represents a good buying opportunity for long-term investors. Its price may remain volatile, but patient investors who don’t obsess over its potential sell-off could be well rewarded in the coming decades.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.