Why bitcoin collapsed and what can help the market recover — says Benjamin Stani of Matrixport

Over the past month, the cryptocurrency market capitalization has fallen nearly 15% and the Fear and Greed Index has already managed to update local lows several times. 

Prices and investor sentiment are being negatively influenced by several factors at once, including news about the start of payments to Mt.Gox customers and the sale of cryptocurrency by the German government. But do these events really affect the market that much? 

To get to the bottom of this, Incrypted spoke with Benjamin Stani — Ecosystem Growth Lead at Matrixport He shared his opinion on the drop in prices, explained what low liquidity and holidays in the US have to do with it, as well as what could be the driver of recovery for the cryptocurrency market.

How do you assess the current market situation? Over the past week, the prices of many cryptocurrencies have dropped significantly. At the time of our conversation, the market has already recovered a bit, but many investors are, let’s say, not in the best mood. What do you think will happen in the future?

Yes, it’s on everyone’s mind. Obviously, I can speak for my views here. I can’t speak for the whole company. But in general, I think what happened last week is a combination of negative headlines, the excess of the continuation of the grind lower from a peak at $72,000 that we had a couple of weeks ago. And then, of course, the low liquidity that typically comes in early July. It was on labor, the fourth of July, a national holiday in the U.S., which is typically the week when you have the lowest bonds in crypto. 

And so that means that in a low liquidity environment, we had some negative headlines. You’ve seen the Mt.Gox unlocks. Those have been hanging over us for many years, and we had indications that this was going to be distributed. But then again, those headlines had come before, years before. And what happened now is that the trustee actually sent out the first batch. It was quite a substantial amount. But it meant that people were now afraid that all of those Bitcoins, or a good portion of those BTCs, might end up on the market.

Then on top of that, we’ve also seen that the German government has started to sell their stack from a seizure of BTC related to an illegal streaming platform that they managed to cut in a big deal. So there are concerns that more government assets and more government seized BTCs, particularly from the U.S., could hit the market. 

But I think it’s less clear for the U.S. side because all of these confiscated BTCs, even the ones from Southern Europe, the vast majority of them are still being held in legal counsel. So they’re not really available for the government to sell at that level, whereas the ones from the German government are actually all quite salable. We’ve seen on the transaction side that they’ve been continuously sold in tranches over the last couple of weeks.

So that’s certainly an overhang, the BTCs that the German government is liquidating in the market. And then we haven’t seen, as far as I know, I haven’t seen any sales of the BTCs that have been redistributed from Mt.Gox. But there are different views out there in the market as to what the impact of that would be. 

How dependent is the cryptocurrency market on the traditional market? How much is it affected by macroeconomic factors?

There are different timescales that you’re looking at. And what we’ve seen, particularly since the beginning of the year, with BTC now becoming an asset through the spot ETF, is that as a class it is widely available and is being included in various multi-asset strategies and portfolios. In the long and medium term, we would have expected even a correlation with other asset classes to increase. Well, that has not happened. In fact, the trend has kind of reversed in the short term. 

We’ve seen the Nasdaq and the stock markets at all-time highs, while the BTC has corrected almost 30% from its recent high in June. So there are still a lot of idiosyncratic factors moving BTC. But I think that’s for the reason I mentioned earlier. It’s generally these idiosyncratic factors that people are worried about. And it’s more that people are extrapolating what of the existing BTC that’s currently seized by the government could still be liquidated, rather than the actual price impact of those liquidations. So I’m more of the view that the market is pricing in some significant sales of Mt.Gox BTC, and it’s basically front-running. 

It’s similar to how the market front-runs institutional inflows. And you could see that very well with the spreads and the futures basis trading, the way the futures were trading at a significant premium in the first quarter. So I think we will see more of a global macro impact on our asset class going forward, but that has not been the driver in the very short term over the last few weeks and the way down. What we are seeing, though, is that the price of bitcoin is reacting to macro data. And obviously that’s because we’re very sensitive to the interest rate outlook. And so, a lot of the people who have spoken here at the conference are also expressing the view that September is probably the time when the Fed has shifted. We could see the first cut, and that would be a tailwind for our asset class as well.

What about the elections in the United States? How much of an impact will they have on the crypto market?

The US election is a very interesting topic, and it has changed completely since we last spoke. The Republican candidate, Donald Trump, has tipped his toes and is now leaning more and more towards actually getting the crypto vote. He met with miners, major bitcoin miners. He famously said that he wants all the remaining bitcoin to be mined in America, which to me is an indication of how little he actually understands the fundamental technology behind it. But it is also a statement of how he is, at least in his election process, campaigning for that vote and has managed to amass some pretty sizable donations from high-profile crypto figures. 

I remember Jesse Powell, the founder of Kraken, personally donated, I think, a million to his campaign and he said he accepted it in BTC. So it has been elevated to a major campaign issue. The Republican Party has also put it on their platform. This just happened yesterday or earlier this week. Some are attributing the SEC’s change of stance and the approval of the Ethereum Spot ETFs as a shift in the White House’s view on crypto. However, this has not really been mitigated since. We haven’t seen much more than the adoption of the positive for the ETF from the US yet.

Speaking of Ethereum, how much of an impact do you think ETFs will have on the asset? 

I think everyone agrees that it’s going to be a lot less than BTC. The main difference or the main reason why it won’t be as impactful as BTC is the way ETFs currently work — staking is not allowed. So that deprives the ETF, the synthetic holders of ETH, of that matrix risk-free rate that we get on ETH. And so that makes holding the ETF much less attractive than holding the actual physical. 

The other reason is that there are a lot of studies out there on how BTC can help improve the SHARPE ratio and the overall risk-adjusted return profile of a multi-asset portfolio. You don’t have those studies for ETH yet. So very, very unlikely. I don’t see any passive flows into these ETFs yet. 

But I think it’s a step. It opens up liquidity for certain types of investors. And so the market has been speculating on the S1 filings that are still required to get these things listed. And when they come, I think Gary Gensler mentioned that it’s possible this summer. A lot of the analysts are speculating that it could be as early as later this month. That’s why I think we’ve seen ETH outperform BTC in the last few days.

My personal opinion is that what we are seeing is a bear trap. But what do you think could be the catalyst for a short-term market rebound?

So I think the most positive thing is short-term, although it could very well be a ‘sell news’ event on the ETH-ETF as well. Which I wouldn’t completely rule out in this kind of environment where the markets are just generally in a more range bound down spiral. I think, to be honest, the most positive catalyst that I can see in the near term is probably more macro-related, which would look into an easing interest rate cycle. 

On the BTC side, I think the market is nervous about the Mt.Gox payouts. And so before the market has confidence that these holdings are not going to be fire sold. The distribution of a lot of these holdings is in these claim funds, so 1% of the holders have more than 50% of the total claim volume. So these are vehicles that have already bet on the fact that they can buy these claims cheap and then get that premium. So these are likely or some claims are likely to be people who are more aligned with the underlying BTCs and long-term holders. I would say that this is something that could help the market find some confidence.

But that is not something that I think is going to be shown and demonstrated in the near term. Because as long as these Mt.Gox coins are not fully distributed, people are going to be afraid that they will be sold and sold on the exchanges.