The last few weeks price of bitcoin wasn't on a downtrend. So were the prices of alt coins. Alts dropped even more than bitcoin did. There were few reasons or speculations why that could have been happening. While it is not always clear why markets behave one way or the other, market participants always seek some kind of explanation. Some make sense, others do not. One of the guesses for the price drops in recent weeks has been Germany selling their confiscated bitcoins. It turns out they had a decent amount. 50,000 bitcoins. Wow, they could have created their own bitcoin ETF. Other speculations regarding the bitcoin price drop were Mt Gox finally starting the distribution of bitcoins to the creditors this month. Then there also news that US government moved some of their bitcoins to Coinbase, potentially to sell. I don't think it was all of their bitcoin holdings though.
Today we hear that German government's last bitcoins have been transferred away, and probably sold. I find this event to be interesting and would like explore a few thoughts regarding it. First I am not convinced that they have sold all bitcoins yet and it is learning moment for all participants and observers of bitcoin market how liquid or illiquid bitcoin is. Second, I think it is a bad decision to sell these bitcoins, especially when it didn't cost them anything to obtain them. Confiscated! Third, does it mean that governments approve of crypto exchanges as legitimate businesses and they have a place in the world financial systems? I am not sure how Germany have treated crypto exchanges so far, but we have seen how SEC in the US has aggressively been fighting against them for last few years.
In May one of the trading indicators that has been impressively reliable on a long timeframe charts like month triggered a bearish signal for bitcoin. It didn't make sense. Everything looked bullish. Sure I thought this time the indicator was going to fail. To my surprise it didn't and price of bitcoin kept dropping. However, bitcoin managed to hold high 60k price range well. Something unusual had to happen for it to drop below 60k. I guess that did happen. Selling 50k bitcoins is a significant event. In combination with Mt Gox news, this makes the case for bearish sentiment strong. They was German government decided to sell their bitcoins was interesting. They have made many transfers to multiple exchanges. One would assume such big transactions would happen in OTC trading. Maybe there weren't many options in OTC markets, and utilizing the free market was a better option. Even though now all bitcoins are transferred away and mostly to crypto exchanges, can we really assume that they have all been sold. There is no real evidence of that, unless these exchanges confirm this publicly. I doubt they would. But at the same time why would German government keep their bitcoins in exchanges without selling for extended time. Let's say they did indeed sold them all. Selling 50k bitcoins in a couple of weeks causing a significant price drop shows how the bitcoin is still not a liquid asset. This was one of Musk's questions to Saylor, how easily Tesla would be able to sell if they had bitcoins in their treasury. Saylor said without any issue.
In fact, Saylor gave an example from his buying experience that when MicroStrategy bought bitcoins they were able to do so without moving the price at all. Of course Saylor and MicroStrategy didn't buy 50k bitcoins in a couple of weeks. They bought less and in a longer timeframe. They continue doing so, and for them the strategy works and we don't see MicroStrategy moving the price at all. We haven't seen them selling though. Perhaps German government could have taken their time too. But since market participants track the blockchain, news would be out and news alone would drive the prices up or down. Also, if they have made the decision to sell, it probably doesn't matter at what price they sell and if their actions would cause drastic changes in the prices of the bitcoin. At least we know 50k is a big enough to make big moves in bitcoins price. At the same time, this move wasn't as big as others would have expected. We have seen crazy price drops for bitcoin and crypto. Bitcoins ability to still hold above 50k is impressive as well.
Yes, bitcoin is still illiquid. You can't sell tens of thousands of them in a day without seeing a significant price drop. So is the case with many stocks. But it also seems like the liquidity of bitcoin is improving. Last time such sell off happened in 2018 when Mt Gox Trustee sold tens of thousands to cover legal expenses, it triggered a very long bear market. I may be wrong, but it doesn't feel like we are in a bear market yet. Next couple of months will show where we are. It is great to see a short term bitcoin holder selling all of their bitcoins, and it is also great to finally see Mt Gox distributing the bitcoins to creditors. Hopefully, Mt Gox chapter of bitcoin will be closed soon. It is very disappointing how Mt Gox trustee handled this. This is a topic for another time. My conclusion on bitcoin's liquidity is that it is still illiquid, but much better than it was a couple of years ago, and it should keep getting better as more and more players enter the market.
If I were Germany I would never sell the bitcoins. 50k bitcoins is a decent amount to have for a country. In a 50 years from now, this will be remembered by many as a mistake. Germany is a rich country. A couple of billions dollars today wouldn't make a huge difference for their expenses or economy. It is not like they received this money in taxes or other government revenues. These bitcoins were confiscated and didn't cost the German government anything. Why not secure it in some digital and physical vault and leave it for the future generations. Bitcoin has proven to be the best investment asset so far. Nobody can predict the future. In decades bitcoin's value might be crazy high, or no value. It doesn't matter what the future will look like. But the historical performance make it worthwhile to take stake in this network for the benefit of country. Why not? These days many countries have debts. The argument I make for US government is, that it will never be able to pay off its debt. But it can hold its bitcoins obtained for free, and see if in the future these holding can pay off this debt. Maybe it won't. But it doesn't cost anything for the US government to take this gamble. Similarly, Germany could have take the gamble and held forever.
We are at getting close the stage in bitcoin's life when sovereign funds and government will be accumulating bitcoins. Now when this race takes off, will there be enough for all. We already have other participants like businesses, institutions getting involved. There is still a lot more participants to enter the market, there is still a lot more people to really embrace the bitcoin as a technology, as a money, and as an investment opportunity. It may even be that the era of retail investors in bitcoin is coming to an end. Who in retail would buy bitcoin when it is above 100k? Yes, Satoshis are good too, but not same as bitcoin.
Some may say that Germany government had to sell it and not use it as an investment, because these bitcoins were confiscated from criminals and it would be a good things to do. If that is the case, any value taken from such confiscations wouldn't be good money. Perhaps, if that was the case and governments wouldn't want to profit from confiscations, they could easily burn the coins. They could send them to lost wallets. Or just send it to Satoshi's wallet. Satoshi won't sell it anyway. This wouldn't help Germany or German government. But it would increase the value of bitcoins for the network participants, since now there would be less of bitcoins which is already scarce. I will just hope German government sold bitcoins to buy litecoins. :)
In recent years SEC's hostile actions against exchanges haven't been pleasant at all. Some exchanges went bankrupt, some closed business, and other made deals. As a result buying and selling crypto assets has become difficult in the US. For example, Hive coins. It is not easy to buy or sell Hive anymore. Before there were multiple options. Now options are near zero. It is the same with many other coins. We can still buy and sell major coins like bitcion and ethereum. Where is fun in that? I am not sure how German government's attitude has been towards exchanges. I am not sure how other countries treat exchanges. There was time when some actions were kind of coordinated in inter-governmental levels. I hope other places still have more freedom in crypto. That's why I thought it was interesting that German government was utilizing multiple exchanges to sell their coins. Similarly, US government moved few bitcoins to Coinbase. But that is probably one of the main ways of buying and selling bitcoin these days. However, Coinbase doesn't offer wide range of crypto assets. I hope things will get better soon regarding exchanges and there will be abundance of options to trade crypto.
