The entire cryptocurrency market has been in decline since May with the price of Bitcoin crashing from around $58,000 to below $32,000. In July, the price of the crypto has dropped further by 4 percent but a report by Luno and Arcane Research this does not take away the safest crypto-asset tag from Bitcoin.
This is because, at the 4 percent decline, bitcoin is still outperforming all crypto indexes. The price of bitcoin was trading at $31,712 on Thursday on the Coinmarketcap, representing a 3.36 percent drop in the seven days. Within the same period, Ethereum, the largest cryptocurrency by valuation dropped by over 11 percent.
According to the report, all indexes are still moving sideways in July, amid Bitcoin’s consolidation, but has taken a hit over the weekend and is now clearly in the red.
The price of bitcoin and other cryptocurrencies is largely determined by demand and supply. Trading volumes on big exchanges such as Coinbase, Kraken, Binance, Luno, and Bitstamp took a plunge, falling more than 40 percent in June. The major driver is the crackdown by the Chinese government on bitcoin mining businesses and cryptocurrency exchanges. The 7-day average trading volume has now returned to the levels leading to bitcoin surpassing its 2017 all-time-high (ATH) in December 2020.
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The trend of unusually low weekend volumes remains, and this Sunday, bitcoin saw its lowest daily trading volume since December 14th, with a daily trading volume of $2.2 billion. The trading activity has calmed down, and as of now, it seems likely that the trend of low volumes and low volatility from last year’s summer will repeat this summer.
The Chinese crackdown pushed up the fear button in many investors in the market.
“The digital asset ecosystem got punched in the face, so it’s currently up against the ropes versus fighting in the middle of the ring,” said Teddy Vallee, chief investment officer at Pervalle Global. “Typically, when you have large sell-offs, participants are quite fearful and pull back their chips.”
Bitcoin remains an important asset class with stocks and hard commodities. The correlation between bitcoin, S&P, and gold hit record high levels following the COVID-19 market crash in 2020 and remained high up until the third quarter of 2020. Historically, bitcoin’s correlation to these markets has fluctuated around 0, so the current correlation, in particular, to the S&P, is still higher than the previous norm.
Experts are also keeping up hope of a recovery soon because of the increasing number of Bitcoin miners that have relocated from China to countries like the US. According to Glassnode, the Miner Net Position Change metric has returned to accumulation. The miner net position change represents the transactional flow of mining pools; when the metric is positive, the total number of bitcoins being sold by miners is less than the amount being held. The return to accumulation indicates that what sell-side pressure is coming from offline miners, is more than offset by accumulation by the operational miners.
