Bitcoin's rise to a new all-time high (ATH) of $72,000 in March this year signalled the beginning of a crypto bull run after a long crypto winter that saw many crypto companies shut down.
However, it seems like the bull run is fading.
CoinMarketCap's fear and greed index, which measures general sentiment in the crypto market, shows an index reading of 40.
An index reading of 0–24 signifies extreme fear, suggesting that investors are worried, which might present a buying opportunity as prices could be undervalued.
A range of 25–49 indicates fear, showing a cautious sentiment among investors. A neutral reading of 50 denotes a balanced market sentiment, while a score of 51–74 suggests greed, indicating rising confidence and optimism.
A reading of 75–100 signals extreme greed, where excessive optimism might mean the market is overvalued and a correction could be imminent.
While the current index reading of 40 is a sign that the market might not be so bullish, a recent survey by CoinGecko on 2,500 people revealed that 49% of them are still bullish on the crypto market.
This is despite bitcoin, the largest cryptocurrency by market cap, dropping below $55,000 since February this year. Although it gained some value, the flagship crypto still sits at $57,000, struggling to cross the $60,000 mark.
Why did the value of bitcoin drop?
Many factors are responsible for the drop in the value of bitcoin and one of them is related to a $9 billion payout to the users of Mt. Gox, a crypto exchange that collapsed in 2014.
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Mt. Gox, once the world's largest bitcoin exchange, represents a pivotal chapter in the history of cryptocurrency. Founded in 2010 by Jed McCaleb, the platform quickly rose to prominence, handling over 70% of all bitcoin transactions by 2013.
Its meteoric success underscored the growing potential of digital currencies and marked a significant milestone in bitcoin's mainstream adoption.
However, it collapsed in February 2014, suspended trading, closed its website, and filed for bankruptcy. It was revealed that approximately 850,000 bitcoins, worth around $450 million at the time, had been stolen, likely due to a combination of hacking and mismanagement.
Investigations and legal battles followed, and Mark Karpelès, who took over the exchange in 2011, was arrested and charged with embezzlement and data manipulation.
Today, Mt. Gox's legacy serves as a cautionary tale and a crucial learning point for the cryptocurrency community.
However, the community panicked after the trustee for the Mt. Gox bankruptcy estate, Nobuaki Kobayashi, said in a statement that it had begun making repayments in bitcoin.
The repayments, which went from $450 million to $9 billion because of the increase in the price of bitcoin, had the crypto community panicking because many assumed that when the investors received their repayments, they would sell off, which could decimate the market.
Per CNBC investors liquidated a combined $639.58 million in anticipation of this market decimation. And interestingly, the price of bitcoin dropped below $55,000 for the first time since February 2024.
Governments selling off bitcoin
Another reason for the crypto market's recent downtrend is the announcement by the German and US governments to sell part of their crypto holdings.
According to Blockworks, both countries have already sent a combined $737.6 million in bitcoin to exchanges, including Coinbase, Bitstamp, and Kraken.
The US government, which owns the most bitcoin of any government in the world, amassed a significant amount of cryptocurrency primarily through seizures linked to criminal activities.
These assets are often obtained during law enforcement operations targeting illegal online marketplaces, cybercrime, and money laundering schemes.
For instance, most of the government's bitcoin holdings came from the Silk Road bust, where over 144,000 bitcoins ($8 billion) were confiscated.
The government typically auctions off these seized assets, generating substantial revenue.
However, recent movements have seen the US transfer around $241.5 million worth of bitcoin to exchanges, indicating potential sales that could impact market dynamics by increasing supply and potentially driving down prices.
It's unclear if this move is a deliberate attempt by the US government to sabotage the crypto market, but continuous sales could lower the market's value further.
In fact, over $170 billion was wiped off the entire crypto market in the first week of July.
Interestingly, it seems crypto traders and analysts are holding strong despite these setbacks. An analyst at CCData, a crypto data and research firm, said that bitcoin has not reached the top of its appreciation cycle.
Tom Lee, a researcher at Fundstrat Global Advisors, went as far as saying that he sees bitcoin going up to $150,000 despite the setbacks.
However, if the fear and greed index continues to drop, investor confidence in the hyped 2024 bull run could wane, ushering in another crypto winter.