Large Volatility - Time to Buy the Dip?

This week we saw a massive sell off in the digital asset class. Bitcoin fell as much as 13% from $61k USD to $53.5k on July 5. This was due to heightened fear of large sell pressure from the movement of Mt Gox redistributed Bitcoin. Furthermore, the fear and greed index hit its lowest level since January 2023, signifying the immense panic and uncertainty surrounding this event. One of Warren Buffets famous quotes states that it's wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful”, and we believe that now is the time to be paying attention.

Across July 4 and 5th we saw total liquidations across centralised exchanges reach close to $1 billion USD, one of the largest liquidation events of the year.

Bitcoin Weekly Price Chart

Mt Gox Bitcoin Payout

Mt Gox was an exchange launched in 2010 in Japan that went bankrupt in 2014 following a hack in which hundreds of thousands of their Bitcoins were stolen. Since the hack, creditors have been waiting to be able to withdraw their holdings. Data from blockchain analytics firm Arkham Intelligence reveals that a cold storage wallet belonging to Mt. Gox has transferred 47,228 BTC, valued at approximately $2.71 billion. Mt. Gox holds around 142,000 Bitcoins (0.7% of total supply), along with 143,000 in Bitcoin Cash and 69 billion Japanese yen ($432 million USD) which it plans to continue repaying.

This is a large amount of Bitcoin that had been untouched for a decade and analysts predict that most recipients will likely sell their BTC once received as most of these investors would be heavily in profit since 2014. One Bitcoin in February 2014, just before Mt. Gox collapsed, and was worth around $600. The same Bitcoin today is worth about $58,000 (9,500% gain).

German Government Selling

The German government offloaded over 16,000 BTC on Monday, marking the single largest sell-off in a day since the selling began. This Bitcoin was part of the 48,000 BTC seized from movie.k in 2013, which is currently being liquidated and has significantly pressured the market and weighed heavily on investors in the past few weeks. However, the sell pressure is beginning to diminish as over half of their Bitcoin stack has already been liquidated. If this trajectory continues, the German government is set to finish selling in two weeks.

How Much Are Funds Allocating to Crypto?

A significant barrier for investors in the digital asset market has been accessibility and the lack of regulatory framework. These hurdles have quickly diminished as the asset class has since developed into a more mature investment vehicle. Investors are now able to purchase Bitcoin through regulated ETFs on the US stock market, instilling confidence into both institutional and retail investors. BlackRock’s spot bitcoin ETF has accumulated $17.24 billion in assets since its launch in January 2024, with the combined AUM of US BTC ETFs being $59 billion.

Recently blockchain experts have predicted that Crypto ETFs will contribute towards 5% of hedge funds and pension funds portfolios by 2025. Traditionally pension funds have invested in long term investments such as bonds, equities and real estate, but recently we’ve seen a shift towards an even more diversified portfolio into digital assets, aiming to achieve higher returns.

If the top 5 global hedge and pension funds were to allocate just 5% of portfolios to crypto etfs, it would equate to $269.78 billion of inflows. The adoption of Bitcoin ETFs have paved the way for institutional entities to gain exposure to this asset class as they now have clarity over the regulatory frameworks. As crypto continues to make its way into the traditional financial system we expect the asset class to mature into a less volatile, more appealing investment option that accounts for a portion of all diversified portfolios.

Crypto ETFs

Despite Bitcoin's recent negative price action, Bitcoin ETFs have experienced significant positive inflows. On Friday, July 5th, Bitcoin dropped 6% in a single day, however Bitcoins ETFs simultaneously saw strong inflows totalling $143.1 million. This highlights there is strong demand regardless of the short term price movements and there is a desire for institutions and retail to accumulate positions during market dips. Subsequently, we've observed two more days of substantial inflows of $294.8 million on July 8 and $216.4 million on July 9, marking the highest net flows since June 5.

The launch of Ethereum ETFs has been slightly delayed due to the SEC suggesting slight adjustments on the applications, however we still predict the ETFs to go live this month. July 8th was the deadline for revised filings and we saw VanEck, Blackrock, Grayscale, 21Shares and Fidelity all re-submitting to the SEC. As asset managers and crypto investors anticipate the launch of these ETFs , Ethereum's price has bounced 10% from the lows of $2,813 we saw on Monday to a current price of $3,117.

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