The crypto market has entered a period of stagnation, with multiple factors influencing future trends.

In July of this year, the crypto market failed to rebound as expected and instead fell into a deeper slump. A series of negative news triggered panic among investors, leading to a significant drop in Bitcoin prices, which in turn dragged the entire crypto market down. Despite the severe blow to the market, the cumulative effect of several positive factors has led many industry insiders to maintain a cautiously optimistic outlook on the market prospects for the fourth quarter of 2024.

Major Challenges Facing the Current Market

Mt. Gox compensation triggers market turmoil

The compensation issue of the Mt. Gox incident has become the focus of market attention. The potential selling pressure of over 140,000 Bitcoins and an equivalent amount of Bitcoin Cash triggered market panic in late June, causing the price of Bitcoin to briefly drop to around $60,000.

With the compensation officially launched on July 5th, Bitcoin has fallen below the important support level of 60,000 USD under huge selling pressure. During this process, Bitcoin miners have shown signs of surrender, which is often seen as a signal that prices have hit bottom. The last similar decline in hash rate occurred in 2022 when Bitcoin's trading price was around 17,000 USD.

Some market analysts believe that the current market may experience a more severe correction, potentially dropping to the $40,000 range. Such a correction could have a significant impact on the market and may require several months of consolidation or a downward trend to recover.

The German government is selling off Bitcoin on a large scale.

In early July, the German government transferred over 10,000 bitcoins in batches to major trading platforms and market makers. This action caused the price of bitcoin to temporarily drop below $55,000. However, according to statistics from a data analysis platform, the German government subsequently retrieved nearly 2,900 bitcoins, worth approximately $163 million.

Data shows that the German government's sell-off plan is nearly halfway complete. Since the start of the sell-off last month, its Bitcoin holdings have decreased from nearly 50,000 to over 27,000, with the current holding valued at approximately $1.5 billion.

Despite the market downturn, data shows that the inflow amount of digital asset investment products reached $441 million last week, with Bitcoin investment products accounting for the largest share at 90%. Regionally, the inflow of funds mainly came from the United States, followed by Hong Kong, Switzerland, and Canada, while Germany saw an outflow of funds.

The Bitcoin mining industry is facing challenges.

The recent decline in Bitcoin prices has put tremendous pressure on miners. According to a survey, if the price of Bitcoin falls to $54,000, only ASIC miners with an efficiency of over 23W/T will be able to make a profit, and only a few models of mining machines can barely sustain this.

The selling behavior of miners is also considered to be part of the reason for this price drop. To cope with cash flow issues after the halving, mining companies continue to sell, and in June alone, 30,000 bitcoins from miners entered the market.

Fortunately, as the price of Bitcoin declines, small and medium-sized mining farms are gradually shutting down, and the difficulty of Bitcoin mining is rapidly decreasing, suggesting that the surrender of miners may soon come to an end. On July 9, data showed that the difficulty of Bitcoin mining was reduced by 5% to 79.5T, with the average hash rate across the network in the past seven days at 586.72EH/s. Since May, the amount of Bitcoin sent to exchanges for sale by miners has significantly decreased, and over-the-counter trading volume has noticeably declined.

Positive Factors Worth Paying Attention To

A large-scale repayment plan is expected to boost the market.

A certain bankrupt crypto exchange submitted a revised reorganization plan to the court in May this year, indicating that the total value of assets available for distribution is expected to be between 14.5 billion and 16.3 billion USD, exceeding the 11 billion USD owed to its creditors. The excess cash will be used to pay interest to the company's more than 2 million customers.

Currently, the exchange has obtained court approval, and creditors can choose to receive compensation in the form of cash or physical assets of encryption. Creditors must vote by August 16, and the judge will decide whether to approve the plan on October 7. Once approved, the exchange will repay creditors within two months, with the expected timeframe being from the fourth quarter of 2024 to the first quarter of 2025.

Although the final compensation method has not yet been determined, some analysts believe that considering that most creditors are cryptocurrency enthusiasts, this fund of up to $16 billion is likely to flow into the crypto market and become an important factor in driving price increases.

interest rate cut expectations rise

The Federal Reserve's monetary policy has always been one of the important factors influencing the price of Bitcoin, and interest rate cuts usually drive the market stronger.

Recently, the Chairman of the Federal Reserve stated that inflationary pressures in the United States have eased, but more data is needed to prove that the inflation risk has passed before deciding to cut interest rates. If rates are cut too early, inflation may rise again; if rates are cut too late, it could lead to a slowdown in economic growth, or even trigger a recession.

Although the timing for interest rate cuts has not yet been determined, market expectations for a rate cut are rising as the latest economic data from the United States shows a slowdown in economic growth. According to a certain interest rate observation tool, as of July 9, the market expects the probability of the Federal Reserve cutting rates at the September meeting to rise to 73.6%, while the probability of staying put is 22.9%.

The new accounting standards will take effect next year.

In December of last year, the Financial Accounting Standards Board in the United States published the first version of accounting rules for encryption digital currencies, requiring companies that hold Bitcoin or Ethereum to record changes in their coin value at fair value and reflect them in net income. The new regulations will take effect for fiscal years starting after December 15, 2024, and will apply to both public and private companies in 2025.

The change in this accounting standard means that companies, including several well-known enterprises, will be able to record the highs and lows of their cryptocurrency holdings. This will drive further compliance in the crypto market and is expected to attract liquidity injections from mainstream financial markets.

A Review of Bitcoin Price Trends After Each Halving

Historically, Bitcoin usually experiences a correction around the halving. Here are the situations from the last two halvings:

Second Halving ( July 10, 2016 ) One month before the halving, Bitcoin surged by 78%, but after the halving, it experienced a deep pullback, dropping 30% within a week, with a maximum decline of 40%. It then started to rise continuously, increasing from under $500 to nearly $20,000.

Third Halving ( May 12, 2020 ) Due to special events, the market dropped significantly before the halving. There was a 20% retracement in the week prior to the halving. After the halving, there was a rebound, but it did not rise significantly, and the market experienced fluctuations. From the peak before the halving in early May, it retraced and fluctuated until the end of July before breaking upwards, taking about 3 months, during which there were two instances of over 10% retracement.

The market generally expects Bitcoin to rise after the halving, but the specific trend still needs further observation. Regardless of how the market changes in the future, investors should be prepared for appropriate risk management and strategy adjustments.