"7.5" The cryptocurrency market faces another crash, should we buy the dip or run away?

Author: Tuo Luo Finance

After June 18, July 5 came again, and the crypto market is once again facing a washout.

On July 5, Bitcoin, which had been defending the 60,000 mark, could not hide its downward trend, consecutively falling below the 58,000 mark after noon, reaching as low as 53,363.32 USD, and now hovering around 54,000 USD, down 7.13% in 24 hours, returning to the levels seen at the end of February. Ethereum followed closely, dropping below 2,900 USD, currently reported at 2,868 USD, sliding 8.62% in 24 hours. Apart from mainstream coins, most altcoins, which were expected to have little room to fall, also experienced a general drop of 20%.

According to Coinglass data, as of 2:21 PM, the 24-hour crypto liquidation reached 683 million USD, with the majority being long positions, totaling 590 million USD, while short positions were less than 100 million USD, indicating a one-sided market trend.

Back to June 18, Bitcoin was still hovering around the main support level of 64,000-66,000, and in just half a month, it has fallen to the 55,000 level. What exactly happened in the market? Is the follow-up about bottom fishing or timely retreat?

From the events, there has been no significant change in the overall Bitcoin narrative; topics around ETFs and miners are still present, and the long-term outlook remains highly dependent on macro expectations, with no clear progress on any of these fronts.

In terms of macro expectations, although the market generally supports the view of a rate cut in September, the direction of the Federal Reserve remains unclear. The minutes from the Federal Reserve meeting indicate that participants believe inflation is moving in the right direction, but the pace is not sufficient to lower interest rates. On July 2, Federal Reserve Chairman Jerome Powell reiterated at the European Central Bank Central Bank Forum in Sintra, Portugal, that while recent inflation pressures in the U.S. have eased, more data is needed to prove that inflation risks have passed before deciding to cut rates.

ETF data has shown a lackluster performance. Despite the market's continuous decline, ETFs actually saw a net inflow for five consecutive working days starting from June 25, only beginning to see outflows on July 2 and July 3, with inflows and outflows both around 20 million USD, insufficient to significantly impact the market.

Returning to the industry, miners are still in a continuous selling phase. Over the past week, miners sold more than 150 million USD worth of BTC, but the selling volume has noticeably decreased, and the corresponding hash rate is gradually recovering, indicating that the miner capitulation effect is diminishing.

Changes in miner exchange wallets, source: Glassnode

However, due to the above factors, there is no practical solution to the short-term liquidity exhaustion issue surrounding Bitcoin. In this context, short-term narratives and market movements are more likely to trigger wild fluctuations, which is the main logic behind the July 5 events.

In the past two weeks, two major events closely related to the market occurred: one is the German government's BTC sale, and the other is the commencement of the Mt. Gox compensation process.

As early as January this year, the German government announced that during the investigation of the piracy streaming platform movie2k, it seized nearly 50,000 BTC from a suspect, valued at about 2.1 billion USD. At that time, the investigation agency in Saxony, Germany, caused a stir in the market by transferring this large amount of BTC from the wallet. According to German law, certain federal states require that seized assets be sold immediately, but due to ongoing discussions and divisions regarding asset handling, this large sum remained quiet.

By June, this fund began to show signs of movement. Starting from June 19, Germany began to sell Bitcoin, selling 6,500 BTC on the first day, followed by small transfers. On July 4, the German government transferred another 1,300 BTC to exchanges and moved 1,700 BTC to anonymous wallet addresses. In about half a month, the German government sold approximately 9,400 BTC and currently holds 41,774 BTC. Just this afternoon at 3 PM, the German government transferred 500 BTC to a new address starting with 139P, valued at about 27.07 million USD.

Changes in the German government wallet address today, source: Arkham

Coincidentally, Mt. Gox also added fuel to the bearish sentiment. As early as June, before Mt. Gox officially began compensation, it announced that repayments would start in early July. Despite repeatedly emphasizing that it would not dump all at once, panic ensued, and potential selling pressure of 140,000 BTC nearly caused Bitcoin to fall below 60,000. In July, Mt. Gox officially began its actions. On July 4, the Arkham platform showed that Mt. Gox had conducted test transfers. On July 5, according to PeckShieldAlert monitoring, the address receiving 47,200 BTC from Mt. Gox transferred the funds to two new addresses, with 44,500 BTC going to an address starting with 16ArP3 and about 2,700 BTC going to an address starting with 1JbezD.

Beyond these two events, the U.S. government and rumored mysterious Eastern forces have also been drawn into the turmoil. On June 27, Bitcoin worth over 240 million USD was transferred from a private wallet to the Coinbase platform, particularly associated with institutional traders. According to blockchain data tracking, this Bitcoin was seized by the U.S. government from drug dealer Banmeet Singh in 2024, and it is unclear whether it will be sold afterward. Subsequently, U.S. government addresses continued to transfer out 248 BTC and 3,375 ETH, leading to a rapid spread of rumors about U.S. government sell-offs in the market.

If the U.S. government has a traceable path, the mysterious Eastern forces can only be regarded as market rumors. Market news suggests that a certain province in our country is selling BTC within the past week, totaling 11,000 BTC, with more than half already sold, averaging 1,000 BTC sold per day. Although the authenticity of the news is uncertain, there are indeed significant movements in whale addresses on-chain.

In summary, the actual selling pressure shows that Germany has sold less than 10,000 BTC in half a month, the U.S. government has no unusual movements, the Eastern forces have only sold a few thousand BTC, and Mt. Gox is still in the initial proposal stage, with selling pressure remaining within controllable limits. Exchange data also supports this, as of 8 AM this morning, the amount of BTC transferred to exchanges was quite low, even less than the data from a week ago.

However, the scale of the drop today undoubtedly highlights the hard issue of insufficient liquidity. Especially today, as the U.S. is in the Independence Day holiday, market liquidity is already low, and with the additional sell-off, Wall Street's purchasing power struggles to absorb it, leading to the spread of panic sentiment and a downward spiral, with long-term profit-takers also seizing the opportunity to sell, resulting in a clear stampede effect.

Social media has also exacerbated the panic. In crypto forums, while overseas media's positive commentary on prices is politically correct, according to findings from Sentiment, the mentions of selling in the last 24 hours far exceeded those of buying.

Attributing the causes can be analyzed, but how should the subsequent market trend unfold? Should one bottom fish or take profits? Analysts still have differing opinions on this.

eToro market analyst Josh Gilbert believes that the current negative news far outweighs the positive, expecting that Bitcoin's price trend will further deteriorate in the coming days, with prices likely to test 50,000 USD or even lower, and 52,000 USD will be a key battleground between bear and bull markets.

Markus Thielen, an analyst at 10x Research, supports this view, suggesting that prices may drop to 50,000 USD in the coming weeks, warning that "as support levels are broken, sellers will rush to find liquidity, and the sell-off may accelerate."

However, more traders maintain an optimistic outlook, believing that a bottom price has already formed. A significant event is that the miner capitulation is nearing its end; with BTC prices at 54,000, currently only five mining models, including four Antminer models and one Avalon model, can bring profits to operators, which may signal a local bottom. Dovey Wan, a partner at the cryptocurrency fund Primitive Crypto, also stated: "Bitcoin miners are just one step away from capitulation; the breakeven point for S19 is 52,000, which is a perfect position for a local bottom."

From the perspective of events, it cannot be denied that negative news is still ongoing. In Germany, although lawmakers have unilaterally called for a halt to sales to reduce market risk, given the consistency of German laws and action guidelines, sales will continue. In response, Sun Yuchen directly called out on the X platform, stating that he could purchase German BTC over-the-counter, which seems to be more for marketing purposes. As for Mt. Gox, it has notified today that it will begin repaying some creditors with Bitcoin and Bitcoin Cash. The trustee also reiterated in the announcement that repayment will be conducted through designated cryptocurrency exchanges according to the compensation plan.

However, returning to the main point, this level of selling pressure is not actually that large; the direct cause remains insufficient purchasing power. From the data, the BTC accumulation on exchanges over the past 24 hours is only about 35,000 BTC, a number that, looking back to 2021, was merely the consumption of one day in a bull market, and just a few months ago, it was only three days' worth, but now, it may take over three weeks to digest.

On the other hand, during the Asian trading hours outside of U.S. time, prices have fallen multiple times in this cycle, and weekends typically bring further liquidity droughts. However, based on this speculation, when it reaches the main trading hours in the U.S. workdays, the buying power will quickly strengthen, and the downward trend may be curbed in the short term.

Before that, key data to focus on is the non-farm payroll data. According to the schedule, the U.S. Department of Labor is set to release the June non-farm employment report at 8:30 PM Beijing time tonight. According to the median economist expectations compiled by industry media, it is expected that non-farm employment will increase by 190,000 in June, with the unemployment rate remaining flat from the previous month at 4%.

The unemployment rate will be the core focus. Technically, if the U.S. unemployment rate rises to 4.2%, it will trigger the Sam Rule. According to the Sam Rule, when the three-month moving average of the unemployment rate rises by 0.5 percentage points or more compared to the low point of the previous 12 months, the U.S. economy will fall into recession. In simple terms, an increase in the unemployment rate indicates that the market is entering a recession, and under this pressure, the likelihood of a rate cut will increase. If the employment report is positive, the Federal Reserve is more likely to maintain its current interest rate policy.

The reason lies in the fact that the current core of the market is inseparable from liquidity, which has directly led to many crypto enthusiasts, once considered grassroots, moving towards macro analysts. In this bear-like bull market, rate cuts seem to be a beacon. But on the eve of rate cuts, the market's final drop is also approaching, and asset management and risk control may be the true guiding light for investors.