Summary Bitcoin has experienced a significant sell-off, down over 20% in the last month, leading to panic in the crypto world. German government selling Bitcoin, Justin Sun offering to buy, and Mt.Gox settlement could be contributing to the selling pressure. Technical analysis suggests potential support levels, while fundamentals point to future demand from institutions, nations, and younger investors. Thesis Summary Bitcoin (BTC-USD) has experienced a very substantial sell-off in the last couple of days and is down over 20% in the last month. Panic has hit the crypto world, and a lot of people are already talking about a bear market. However, we can actually look behind the scenes here to try and better understand why Bitcoin is selling off. Furthermore, we can use technical analysis to determine the key levels of support that we might test in the next few days. Ultimately, the fundamentals for Bitcoin have not changed. Data suggests we will see trillions flow into crypto over the next decade. “Die Wale” Are Selling The German government has been selling the Bitcoin it seized over the last few weeks. On.chain data suggests the German government sold around $175 million in Bitcoin on July 4th. And this is just the tip of the iceberg, since the European country still holds a neat stash of around 40,000 Bitcoin. Following the initial price crash, the founder of Tron (TRON-USD), Justin Sun, offered to buy up all of Germany’s Bitcoin off-chain in order to prevent further price crashes. We’ve also seen some German MPs voice their disagreement with the country's actions. Joana Costa said the Bitcoin sales were a hasty move, and that the government should consider holding on to the cryptocurrency in order to diversify the nation's Treasury reserves. On top of the sales from the German government, which are a verifiable fact, there’s also some speculation that investors could be selling their Bitcoin received from the recent Mt.Gox settlement, or that perhaps short-sellers are pre-empting this move. Mt.Gox was one of the first large centralized crypto exchanges, and following its bankruptcy, legal procedures have taken place in order to re-pay their users to the extent possible. The trustee for the Mt.Gox bankruptcy estate said that they had begun paying out settlements in Bitcoin this Friday. That’s about $9 billion worth of Bitcoin that could be entering as possible selling pressure. Fundamentally, there’s been a temporary and sudden spike in selling pressure, without a commensurate increase in demand. It’s certainly worth noting that this sell-off really began taking place on July 4th, a day when regular markets are closed in the US, and one would expect the crypto market to also be less liquid than usual. Technical Outlook Looking at the technicals, however, we are well within the range of a correction I would expect in Bitcoin. Bitcoin weekly chart (Trendspider) Looking at the weekly chart, I’d say we are still forming an impulse from the lows back in 2023. Bitcoin topped around $70,000 in a wave 3 and has now formed a corrective ABC structure in a wave 4. As I write this, we are finding support around the 38.2% retracement, and we are also holding above the50 week MA. The RSI is approaching 50 and the last time this happened on the weekly was just ahead of the wave rally. BTC daily chart (Trendspider) Zooming in, we can see that we have completed an ABC in wave 4, with the plates moving down a pretty clean five-wave structure. It’s definitely quite encouraging to see that while the price has fallen, the RSI has held quite well, giving us a bullish divergence. We did break below the 200 EMA on the daily chart, but we also saw this happen earlier in this bullish cycle. $54,000 could be the bottom, but below that our next main area of support is just around $50,000 where we have the 50% retracement. Below that, we may have to worry about the more immediate future of Bitcoin, though I would still argue it would be an attractive long-term buy. Fundamentals The fundamental landscape for Bitcoin is still very much supportive of higher prices, with three great sources of demand coming in over the next few years to push this higher- Institutions Nations Young(er) Investors The adoption by institutions, including funds and companies, is already well underway. Institutional AUM is over $60 trillion , and we are already seeing a change in the tide. Microstrategy ( MSTR ) is heavily accumulating Bitcoin, and so are other companies like Tesla (TSLA). US companies hold around $6.9 trillion in cash reserves that could potentially make their way into Bitcoin and even other cryptocurrencies. Furthermore, we may see a shift in nations too. Yes, this may still be far away, but the recent sales by Germany have brought this fact to the forefront. There are politicians within the system making the case for Bitcoin. Even Donald Trump, who could potentially be the next US president mentioned using Bitcoin as a strategic reserve asset. Global currency reserves (Statista) There's currently over $11 trillion in foreign reserves according to this data from Statista . This is yet another source of demand that could slowly make its way into Bitcoin over the next decade. We already have countries like El Salvador, which is using Bitcoin as legal tender and has accumulated large reserves. I don't expect Bitcoin to take a major role in the monetary system, at least not in the next decade, but there's certainly going to be some value to holding at least some Bitcoin. Lastly, it’s also worth noting that we are going to see a huge transfer of wealth from Baby Boomers or Gen X and Millennial investors. AUM by generation (Reddit) Up to $84 trillion will be passed down to younger investors according to Bank of America (BAC). Why does this matter? These younger investors are much more likely to put money into crypto. Investor preferences by age (BofA) Crypto and digital assets come second only to real estate in terms of investor preferences, again, according to BofA research. As these assets transition from the older generation to the younger, we can expect these younger investors to allocate a much larger percentage of their wealth towards digital assets. Final Thoughts In conclusion, I still believe this Bitcoin sell-off is a huge opportunity for investors. Technical levels are still holding on to the larger time-frames, and fundamentals still support Bitcoin’s continued price appreciation thanks to those three sources of demand mentioned above. While Bitcoin's market cap is not going to increase 100-fold from these levels, I do believe there's plenty of room for it to appreciate significantly as it becomes a staple in portfolios around the globe for institutions, companies and the coming generation of retail investors. Bitcoin has gained social acceptance, and it has established itself as a valid form of investment. Today's pullback does not represent the end of the asset's ascent, but merely a small correction in what will likely be a much larger bull market.
