Crypto ‘Trump Trade’ on Hold as Other Factors Captivate Market

07/03/2024 22:51

(Bloomberg) -- President Joe Biden’s poor performance in a debate last week has bolstered the prospects for Donald Trump, his crypto-embracing opponent, to return to the White House.Most Read from BloombergUS Allies Say China Is Developing Attack Drones for RussiaChina Can End Russia’s War in Ukraine With One Phone Call, Finland SaysZelenskiy Challenges Trump to Reveal Plans for Ending WarDemocrats Weigh Mid-July Vote to Formally Tap Biden as NomineeBiden Plummets in Leaked Democratic Polling Me

(Bloomberg) -- President Joe Biden’s poor performance in a debate last week has bolstered the prospects for Donald Trump, his crypto-embracing opponent, to return to the White House.

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So why is Bitcoin actually trading lower than it was before the debate? And why are smaller so-called altcoins faring even worse? Traders say the market is being led by other catalysts at the moment, including expected selling of Bitcoin being released from the estate of bankrupt exchange Mt. Gox and “unlocks,” or distributions of additional tokens issued by smaller digital currencies.

“There is no escaping the fundamental laws of supply and demand,” said Spencer Hallarn, global head of OTC trading at GSR. “Between the widely anticipated Bitcoin distributions set to begin from the Mt. Gox bankruptcy estate and the slew of sizable token unlocks scheduled for the coming weeks and months, the wave of new supply staring the crypto market in the face has served as a substantial weight on prices.”

Bitcoin fell for a second day, and traded near more than one-month lows. The largest cryptocurrency dropped as low as 3.7% to $59,623, just off levels last seen in May.

“The market continues to face supply overhang in a seasonally low liquidity, low volatility period,” said Shiliang Tang, president of principal trading firm Arbelos Markets, said. “With the German government/Silk Road/Mt Gox Bitcoin supply overhang coupled with continued monthly unlocks in venture coins, there’s not enough fresh capital inflows to absorb this.”

Since Bitcoin’s price peaked in March, the market capitalization of altcoins other than Ether or stablecoins has fallen significantly. In the early days of crypto, all tokens besides Bitcoin were slapped with the nickname because they were an alternative to the original digital currency, which still commands more than 50% of the estimated $2.4 trillion digital-asset market.

A portion of many projects’ tokens is becoming unlocked this year, which essentially means that venture capitalists and founders can finally sell the digital assets they received years ago in exchange for investing or work contributions. With the crypto market recovering from the crypto winter, or prolonged decline in prices, of two years ago, the rebound makes now an attractive time to sell for many long-term investors. Out of 138 tokens that researcher TokenUnlocks tracks, 120 have unlocks this year, with a combined market valued at about $58 billion as of last month.

Low volatility in Bitcoin and Ether has made life tough for altcoins, which typically benefit from moving markets. In a period when almost all altcoin sectors have been down, GameFi tokens took a “significant hit” while AI tokens remained stagnant, according to David Zimmerman, a DeFi analyst at K33. This was despite a spike in new token launches, averaging 250,000 new coins each month in the second quarter on Ethereum and major Ethereum-based layer-two chains.

“As majors continue to chop and pull back somewhat during this ‘low-vol summer’, the altcoin markets have been hit relatively hard,” Zimmerman said in a note on Wednesday. Memecoins have been a notable exception, growing to a $50 billion collective market capitalization. Tokens focused on the US political race and celebrities were the biggest drivers.

A measure tracking the total crypto market capitalization without Bitcoin and Ether fell nearly 22% in the second quarter, “indicating that altcoin beta is doing exactly what it is designed to do by outperforming – only it is to the downside in this case,” Zimmerman said.

--With assistance from Olga Kharif and Benjamin Taubman.