The cryptocurrency market suffered a strong sell-off last week, with Bitcoin falling from $60,000 to a low of $53,000, a drop of 12%. This drop also caused the trading atmosphere to change from the original consolidation and breakthrough to a pervasive pessimism.

The disaster situation of Ethereum was worse than that of Bitcoin. The main reason was that the long positions of the Ethereum spot ET contract were forced to be liquidated during this decline, further expanding the decline. The final price closed below US$3,000, which also affected Ethereum. Small and medium-sized currencies in the Fang series all experienced more significant declines.

It is generally believed that the reasons for the decline can be summarized into three points: "Mt Gox began to officially transfer wallets", "the continued sale of mining farms" and "the German government's sale of Bitcoin". First of all, the Mt Gox incident was more of an emotional sale, and the potential sales scale of US$7 billion still made investors worried, and they all took profits and exited the market.

Even though most analysts believe that the actual impact on the market will not be that great, because more than a decade has passed, many debt claims are likely to have been lost, sold, or lack documentation, and users will not necessarily sell all of their Bitcoins, and a certain proportion of investors will choose to continue holding Bitcoin, we see that many on-site investors choose to exit and wait and see.

Next is the sell-off of mining farms. After the Bitcoin halving, many small and medium-sized mining farms are facing the fate of losses or being acquired. The business opportunities given up have also led to large mining farms such as Riot and Digital Marathon to continue to expand their computing power this year. Riot also plans to expand its computing power fivefold, from 22 EH/s to 100 EH/s. This requires the deployment of larger mining machines. In order to support capital expenditures, most mining farms choose to sell Bitcoin in exchange for cash, adding continuous sales pressure to the market.

The third point is that the German government did not deal with the confiscated Bitcoin assets through the OTC market, but directly transferred 6,500 BTC to the exchange for sale. This behavior is not smart. If it had chosen OTC trading, the magnitude of the plunge would not have been so large, but the government chose the most ineffective way to complete the transaction, and the short-term price fluctuations were far greater than expected. The original bullish high-leverage contracts were forced to be liquidated, further depressing the price of Bitcoin.

Standing in opposition to the sell-off in the market, the Bitcoin ETF this time played the task of taking on market liquidity. In the past week, the net inflow of funds in the Bitcoin ETF reached hundreds of millions of dollars. Only on Friday, when Bitcoin itself plummeted, it dragged down the ETF funds by a small outflow of US$20 million.

The net outflow of funds from Bitcoin ETF is much lower than expected, indicating that Wall Street investors are still worried about the crash, but not panicking. However, this is only the data for one trading day. What we are worried about is that if Bitcoin continues to fall rapidly, it may also trigger a chain reaction of net outflow of funds from Bitcoin ETF.

The deciding point is whether the German government will continue to sell cryptocurrencies in the secondary market and put pressure on the short-term price of Bitcoin. The current market sell-off is still continuing. If it is difficult to withstand too much market volatility, you can establish some safe-haven short orders to hedge the short-term risk of decline. In the next few days, there will be more negative factors than positive factors, and it is expected to continue until mid-July before there is hope for recovery.

After this large-scale forced liquidation, the cryptocurrency market will take a long time to restore trading confidence. The estimate of Bitcoin's reasonable price of $70,000 has not changed, but Ethereum may be a better trading target in the medium term.

However, if we look at a longer period of time, we are still optimistic about the price performance of the cryptocurrency market. This short-term pullback can provide a better entry opportunity. First of all, the Ethereum ETF that was listed in mid-July will take the lead in leading to a wave of low-end buying. This has nothing to do with trading confidence, but is a buying action that fund companies must make in order to issue products. Assuming that the price continues to fall to that point in time, it will also give investors a good reason to buy in at the bottom.

Next, in September, it is expected to be the first time that the Fed will cut interest rates. Considering the upcoming US election, in order to reduce public pressure and prevent the US economy from falling into recession in advance, the Fed has a great chance to cut interest rates first to see how the market reacts. This is also in line with the expectation that the Fed will cut interest rates once this year.

In the long run, the United States will continue to spend money and its loose policy will not change. Holding Bitcoin is still the best option for storing value. Those with light short positions can take advantage of this drop to continue purchasing, obtain lower holding costs and wait for subsequent prices to rebound and return to the road of recovery.

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