The cryptocurrency market, particularly Bitcoin, is currently experiencing a challenging period, despite the global stock market’s resurgence to near record highs following the alleviation of concerns about the US economy. Since the beginning of August, Bitcoin has encountered a 9% decline, in stark contrast to the nearly 1% increase in MSCI Inc.’s global share index and the surge in gold prices to an all-time high. Additionally, Bloomberg’s global bond gauge has indicated a nearly 2% increase over the same period.

One of the main contributing factors to the difficulties faced by digital assets such as Bitcoin is the potential sale of Bitcoin seized by the US government, estimated to have a value of approximately $12 billion in cryptocurrency. According to blockchain data, the US recently transferred $600 million of confiscated Bitcoin to a wallet on the exchange operated by Coinbase Global Inc., as analyzed by Arkham Intelligence. This has resulted in temporary downward pressure on Bitcoin’s price, as noted by Khushboo Khullar, venture partner at Lightning Ventures, an investor in Bitcoin-related companies.

The digital asset market experienced a significant selloff on August 5, marking the largest drop since November 2022. This decline coincided with a plunge in equities due to concerns about US economic growth and the unwinding of the yen carry trade, which impacted risk appetite on a global scale. However, as more reassuring data about the US economy emerged, expectations stabilized, and MSCI’s global share index is now just 1.5% below the record set in July.

Despite the recovery in the stock market, there has been a noticeable decline in appetite for crypto exposure. For example, the funding rate for Bitcoin perpetual futures on the Binance exchange, widely used by speculators, has shown the most negative rate since 2022, signaling reduced interest from fast-money traders.

Bitcoin reached its all-time high of $73,798 in March, largely influenced by bets on looser US monetary policy and investments in dedicated US exchange-traded funds. However, as subscriptions for these ETFs cooled, the cryptocurrency market saw a corresponding decline. In addition, uncertainty in US politics, particularly the upcoming presidential race between pro-crypto Republican Donald Trump and Vice President Kamala Harris, has also impacted Bitcoin, with Harris yet to outline a clear stance on digital assets.

As of 7:55 a.m. on Monday in London, Bitcoin was down 2% to $58,630, while other major tokens such as Ether and Solana showed mixed performance.

In conclusion, the cryptocurrency market, particularly Bitcoin, is currently facing a challenging period amidst the fluctuating global economy and political uncertainties. Traders and investors are closely monitoring the developments and analyzing the impact of various external factors on the digital asset market.

©2024 Bloomberg L.P.

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