Bitcoin’s Price Falls Below $25,000 Amidst Erosion of Confidence

Bitcoin’s price briefly fell below $25,000 on Monday for the first time in almost three months amidst an erosion of confidence in the digital asset.

FTX Bankruptcy and Liquidation

Investors anticipate that bankrupt exchange FTX might get court approval by Wednesday to begin liquidating its remaining crypto asset holdings. Court documents reveal a desire to liquidate up to $100 million worth of crypto assets per week. As of April 2023, FTX possessed approximately $3.4 billion worth of crypto assets. Of that, FTX holds roughly $560 million in bitcoin, according to a court filing.

Deutsche Digital Assets Head of Research André Dragosch stated that FTX’s eventual liquidations could be largely priced in at the moment, although there is still a heightened uncertainty surrounding FTX’s crypto holdings on 3rd party exchanges. The bankrupt exchange’s plan to sell and hedge its crypto assets into fiat currency is scheduled to be discussed at a court hearing on Wednesday, September 13.

Bitcoin’s price fell 2.2% over the past day to $25,120 at 3:30 p.m. ET, according to CoinGecko.

Bearish Indicators Conspire

Dragosch underscored that the potential FTX sell-off, combined with other bearish indicators, could amplify downside pressure on bitcoin. On-chain data shows declining bitcoin trading volume for both spot and derivative activity. The seven-day moving average of daily spot volume has fallen below $10 billion for the first time since November 2020.

Dragosch also mentioned that perpetual and futures trading volumes continue to be comparatively low. BTC futures and perpetual positioning has decreased significantly, and option traders are more cautious when looking at BTC options’ put-call ratios. Short-term BTC traders have been realizing losses on-chain, especially during the latest sell-off at the end of August.

Another factor adding downside pressure is a possible divestment from crypto hedge funds, who still seem to be a bit overextended based on our analyses. A decrease in macro liquidity, largely attributed to the tightening of central bank monetary policies, is also adding a downside factor. There is a continuous shrinkage in stablecoin market caps, indicating there is less “dry powder” available for investing in crypto assets like bitcoin.

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

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