Markets
Crypto ‘Trump Trade’ Suspended as Other Factors Captivate Market
(Bloomberg) — President Joe Biden’s poor performance in a debate last week boosted the prospects of his crypto-friendly opponent Donald Trump returning to the White House.
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So why is Bitcoin trading lower than it was before the debate? And why are smaller altcoins doing even worse? Traders say the market is currently being driven by other catalysts, including expected sales of Bitcoin unleashed by bankrupt exchange Mt. Gox and “unlocks,” or distributions of additional tokens issued by smaller digital currencies.
“There’s no escaping the fundamental laws of supply and demand,” said Spencer Hallarn, global head of OTC trading at GSR. “Between the highly anticipated Bitcoin distributions set to begin following the Mt. Gox bankruptcy and the series of sizable token releases planned for the coming weeks and months, the wave of new supply facing the cryptocurrency market has put substantial weight on prices.”
Bitcoin fell for the second straight day and traded near its lowest levels in more than a month. The largest cryptocurrency fell as much as 3.7% to $59,623, just below levels last seen in May.
“The market continues to face oversupply in a period of low liquidity and low seasonal volatility,” said Shiliang Tang, president of leading trading firm Arbelos Markets. “With the German government/Silk Road/Mt Gox Bitcoin oversupply, coupled with ongoing monthly releases of venture coins, there is not enough fresh capital inflows to absorb this.”
Since Bitcoin’s price peaked in March, the market cap of altcoins other than Ether or stablecoins has fallen significantly. In the early days of crypto, all tokens except Bitcoin were dubbed “Bitcoin” because they were alternatives to the original digital currency, which still accounts for over 50% of the estimated $2.4 trillion digital asset market.
A portion of many projects’ tokens are being unlocked this year, which essentially means that venture capitalists and founders can finally sell the digital assets they received years ago in exchange for investments or professional contributions. As the cryptocurrency market recovers from the crypto winter, or prolonged price decline, of two years ago, the rebound now makes today an attractive time to sell for many long-term investors. Of the 138 tokens tracked by researcher TokenUnlocks, 120 have been unlocked this year, with the combined market valued at about $58 billion as of last month.
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Low volatility in Bitcoin and Ether has made life difficult for altcoins, which typically benefit from market fluctuations. At a time when nearly all altcoin sectors are down, GameFi tokens have taken a “major hit” while AI tokens have remained stagnant, according to David Zimmerman, a DeFi analyst at K33. This is despite an increase in new token launches, with an average of 250,000 new coins each month in Q2 on Ethereum and major Ethereum-based layer-two chains.
“As the majors continue to pull back somewhat during this low-volatility summer, altcoin markets have been hit relatively hard,” Zimmerman said in a note Wednesday. Memecoins were a notable exception, reaching a collective market cap of $50 billion. Tokens focused on the U.S. political race and celebrities were the main drivers.
A metric that tracks the total market capitalization of cryptocurrencies excluding Bitcoin and Ether fell nearly 22% in the second quarter, “indicating that the altcoin beta is doing exactly what it’s designed to do, outperforming — except it’s to the downside in this case,” Zimmerman said.
–With assistance from Olga Kharif and Benjamin Taubman.
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