Bitcoiners are eyeing government-held crypto.
On Wednesday, the price of bitcoin took a sharp nosedive, falling 7% in an hour. It has also taken most of the crypto market with it.
The drop came just before blockchain analytics firm Arkham announced that wallets linked to defunct crypto exchange Mt. Gox and the US government had been moving large amounts of Bitcoin.
It turned out to be a false positive as a result of a “bug fix,” Arkham later said in a statement. But it led some to believe that the price drop was due to the government beginning to dump large amounts of bitcoin onto the market.
But the fact remains that the state-owned bitcoin and Mt. Gox coins are of interest to investors: On Thursday, another blockchain analysis company, Glassnode, said that the US government and the Mt. Gox trustee held 205,514 and 137,890 bitcoins, respectively (over $10 holding billions in crypto) – and advised investors to keep an eye on the funds.
Because when such large amounts of Bitcoin are transferred, the market moves according to experts.
But first, why is the US government holding bitcoin? And what is Mt Gox?
The Justice Department last year seized more than $3 billion worth of bitcoin linked to the Silk Road dark web marketplace. They then sold a large portion of it – and said they plan to sell more.
Mt. Gox, on the other hand, was a popular Bitcoin exchange that was forced to shut down after a crippling hack eight years ago. Once one of the largest exchanges in the world, it shut down in 2014 after losing 850,000 bitcoins (worth $24.9 billion today) in the massive exploit.
Investors who have lost their money are still waiting to get it back from a trustee.
Christoph Ono, a contributor at open-source bitcoin resource Bitcoin Design, told Decrypt that the scheme is all about risk.
He said: “Will the US government keep this bitcoin forever? Or sell them? If so, will they do it in a way that reduces market impact, or just throw it away all at once? Or auction? Who knows.”
The fascination of watching the wallets holding Mt. Gox funds is similar, he added. “I think Mt. Gox is similar in that there are different unknowns,” Ono said. “Eventually the coins will be released into the wild, but nobody really knows when and how.”
Glassnode senior analyst James Check said that large investors may be interested in government coins.
“Periodically, the US government auctions off these coins, which institutions in particular often find very attractive because they are theoretically blessed and declassified by the US government,” he said. In the past, some institutions have fretted over the origins of crypto assets when buying them and feared they might unknowingly buy from bad actors.
Whatever happens, investors keep their eyes on big HODLers — known as whales — especially unorthodox ones like the US government.
“Roughly $10 billion in bitcoin is an immense amount for the market to absorb,” Evan Kaloudis, the developer behind Zeus, a no-custody Lightning wallet, told Decrypt. “For my part, however, I am pleased that the government is putting them on the market to pass on to new owners.”
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