On July 10, the German government sold a large amount of Bitcoin, which pushed the price down to $54,280, pushing the hash rate to an all-time low. This brought back memories of the summer of 2021, when China's Bitcoin mining ban wreaked havoc on the crypto mining ecosystem, and now the hash rate plunge is re-enacted.
Glassnode data shows that the Crypto Fear & Greed Index has fallen to its lowest level since January 2023, falling to 27 on Tuesday (July 9).
For reference, January 2023 was just two months after the collapse of crypto exchange FTX. At the beginning of the month, the Crypto Fear and Greed Index was 26, while Bitcoin was trading at around $16,500. However, by the end of the month, the price of Bitcoin had risen, trading at around $22,000, TradingView data noted.
The current market panic is due to the German government's sale of Bitcoin assets and the repayment of creditors by the former largest crypto exchange Mt. Gox, which caused the price of Bitcoin to fall from around US$63,000 at the end of June to a low of around US$54,280.
The German government is selling off tens of thousands of bitcoins in batches. The latest news shows that the government has transferred another $276 million worth of bitcoins to its sales wallet. According to Arkham Intelligence data, the German government still holds about 22,800 bitcoins.
Mt. Gox repayments have also begun, with the now-defunct exchange beginning to pay back about $9 billion to creditors. Of that, $8.2 billion is in Bitcoin, which could be sold by creditors, adding additional selling pressure and raising concerns about another Bitcoin crash.
According to Hashrate Index, a cryptocurrency mining analytics firm, hashrate plummeted to 44.31 PH/day last week, which appears to be the worst indicator in the cryptocurrency market so far.
Even when China cracked down on cryptocurrency mining and trading in May 2021, the hashrate only dropped from 379 PH/day to 203 PH/day.
Transaction fees on the Bitcoin network also fell sharply, with transaction volume reaching its lowest point since the third quarter of 2023.
On Monday, the bitcoin blockchain processed just 12.32 BTC in transaction fees, the lowest level in nearly nine months, according to Colin Harper, head of research at Luxor Technology.
He added that the last time transaction fees were this low was in October 2023, when the Bitcoin price surged 28.5% and transaction fees reached 11.4 BTC.
As the United States enters its hottest period of the year, the heat wave could further exacerbate the stagnation in Bitcoin’s hash rate, Hashrate Index said.
“For Q3 2024, changes in Bitcoin hash rate will stem from heat-related limitations, hash price fluctuations, and the ongoing tug-of-war between miners deploying new ASICs,” Colin stressed.
The current situation of three consecutive negative difficulty adjustments is similar to that in the summer of 2021, when the Bitcoin market experienced major turbulence due to China's crackdown on Bitcoin mining and trading.
This year’s slump comes after a turbulent summer for Bitcoin’s hash rate following the fourth halving, when the cryptocurrency’s hash rate fell by 10%.
