Crypto Markets Report: Influx of Mt. Gox related Bitcoin Funds Could Ultimately Benefit Market Dynamics

Cryptocurrency markets continued to decline during this past  week, with the total market cap slipping by 1.3% compared to the previous week, while bitcoin’s dominance remained steady above 53%, the team at Talos noted in their digital assets / blockchain industry recap report.

Talos pointed out in a blog post that BTC fell by 1%, and ETH dropped by 2.3% week-over-week.

In the US-listed spot bitcoin ETF space, “after daily outflows in the second and third weeks of June, flow activity slowed in the last week of June, followed by a $129.5 million net inflow on July 1, 2024.”

Talos mentioned in its update that this early trend “may indicate a potential market structure change due to ETF adoption.”

Talos explained that the first trading day of the month “typically sees noticeable ETF flows due to monthly investment contributions, portfolio rebalancing, new cash deployment, and performance reporting adjustments.”

Talos further noted that the US Securities and Exchange Commission (EC) has returned the S-1 forms “to prospective ETH ETF issuers following the latest round of review, indicating light comments according to news reports.”

Talos added that issuers have “until July 8 to address these comments and resubmit the forms.”

This process marks the second step “in the ETF approval process, with the first step involving the approval of issuers’ 19b-4 forms in May ahead of a critical deadline.”

Unlike the 19b-4 forms, there is “no specific deadline for the S-1 forms, leaving issuers dependent on the SEC’s turnaround time.”

Talos pointed out that earlier speculation “suggesting ether ETFs could launch as early as July 4 was ruled out, with issuers uncertain about the exact launch timing until the SEC clarifies final filing deadlines.”

SEC Chair Gary Gensler previously indicated that ether ETF approvals could occur “sometime over the course of this summer,” but specifics “on timing remain unclear.”

As covered, Circle has received “licensing and approval to issue stablecoins under the Markets in Crypto Assets (MiCA) framework, making it the first global stablecoin issuer to meet MiCA compliance effective from July 1, announced CEO Jeremy Allaire in Paris.”

According to the announcement, the company is now “registered as an electronic money institution, or EMI, in France.”

This milestone enables Circle to “issue its stablecoins USDC and EURC within the regulatory framework.”

Talos pointed out that the approval “follows Circle’s ongoing efforts to align with regulatory standards in the stablecoin sector, including obtaining a digital asset regulatory license in France last December.”

Circle will introduce its MiCA-compliant stablecoins in Europe “through its French entity.”

Talos explained in its blog post that MiCA mandates “that stablecoins issued in the region meet stringent regulatory criteria, with phased implementation of additional provisions expected to be completed by year-end. Starting June 30, stablecoin issuers must adhere to initial MiCA requirements. Non-EU stablecoin issuers serving EU residents are also required to comply with MiCA regulations.”

Talos also mentioned that in a matter of days, Mt. Gox, the bankrupt Tokyo-based bitcoin exchange, will commence (already has at the time of writing but the process could take several months according to various media reports) “the long-awaited process of reimbursing thousands of users with approximately $9 billion worth of tokens.”

This payout marks the conclusion of “a decade-long saga since the exchange collapsed due to multiple thefts that resulted in the loss of up to 950,000 bitcoins.”

Talos added in its recap report that “the distribution follows a complex bankruptcy proceeding fraught with delays and legal battles.”

On June 20, the court-appointed trustee overseeing the exchange’s affairs announced that payments to creditors “would start in early July.”

Recipients will receive a “combination of bitcoin and bitcoin cash, an early derivative of the original cryptocurrency.”

Users who choose to “receive their reimbursements in cryptocurrency have seen the value of their coins soar by over 10,000% over the past decade.”

However, Talos noted that there are concerns that this influx of Mt. Gox-related funds “could lead to significant bitcoin sales as users seek to capitalize on their gains.”

This development has been “a major overhang for the crypto markets across various cycles, potentially triggering a sell-off in July due to substantial liquidation.”

According to Talos’ blog post, once this process concludes, it could “ultimately benefit market dynamics, particularly during the remainder of the summer months, which have already absorbed significant selling pressure from government sales and transfers, and the return of over $2 billion in seized bitcoin by Gemini’s Earn lending program.”

Additionally, according to a Cryptoquant report, miner capitulation levels “are now comparable to those seen at the end of 2022, a period marked by significant market correction following the FTX collapse.”

Miner capitulation indicators such as “declining hashrate and reduced mining revenue per unit of hashrate (hash price) have both shown sharp declines this month, with hashrate plunging by 7.7% since the halving and hash price nearing all-time lows.”

Hashrate represents the computational power in “the Bitcoin network, while hash price denotes the revenue miners earn per unit of hashrate.”

Talos added that as miners face “diminished daily revenues—falling from $79 million on March 6 to $29 million currently—many have begun shutting down equipment, further contributing to the decline in hashrate.”

Historically, instances of Bitcoin miner capitulation “have often coincided with market bottoms, indicating a potential turning point ahead.”

Talos also noted that traditional financial markets “experienced a risk-on sentiment this week. Oil futures surged by 3.4% compared to the previous week, and US equities rose by 1.1%.”

US stocks continued their upward momentum, “printing fresh highs.”

The latest FOMC Minutes, released after the market close, “indicated that most participants viewed the current policy stance as restrictive.”

Several participants noted that “if inflation remains elevated or increases, the Fed Funds Rate may need to be raised.”

The US Dollar Index dropped by 70 basis points “following several disappointing data releases, including Factory Orders, ADP Employment, Jobless Claims, and ISM Non-Manufacturing PMI data.”

Additionally, Talos noted that the 10-year US Treasury yield “rose by 3 basis points, while the Gold & Silver index rallied by 3.7% week on week.”

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