Crypto Market Turmoil: Is Germany to Blame?

The total cryptocurrency market capitalization plummeted 3.9% between June 20 and June 21, approaching its lowest level in five weeks at $2.34 trillion. This decline affected every top-10 coin, with Bitcoin (BTC) dropping 4.2%, Ether (ETH) experiencing a 4% loss, and BNB (BNB) facing a 4.2% correction. Despite some recovery of intraday losses, the market remains in a bearish mood.

Market sentiment turns bearish

Some analysts suggested that a large sale of Bitcoin by the German government caused the crypto market downturn. However, this explanation overlooks the fact that traditional finance investors reacted to unfavorable macroeconomic data. Traders are concerned that the stock market may have peaked and that the U.S. fiscal situation is weakening.

“The 5-year credit default swaps (CDS) on U.S. sovereign debt indicate some worry,” - Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.

According to the onchain crypto analytics firm Arkham, a wallet linked to the German government transferred 6,500 BTC to exchanges on June 19, worth $425 million at the time. Arkham claims that the wallet held nearly 50,000 Bitcoin, believed to have been seized from the pirated movie website Movie2k, which operated in 2013. The evidence suggests that this entity sent BTC to Kraken, Bitstamp, and Coinbase, leaving little doubt about its origin and effective sale.

German government’s Bitcoin wallet

However, this theory is flawed because the U.S.-based business intelligence firm MicroStrategy disclosed on June 20 that it purchased an additional 11,931 BTC for $786 million. Thus, MicroStrategy’s buy covered the selling pressure, including the two-day $292 million net outflow from U.S. spot Bitcoin exchange-traded funds.

Given that no other regulatory changes or events could have negatively impacted the sentiment of cryptocurrency investors in the past couple of days, one should focus on the traditional finance industry, particularly on macroeconomic data. Despite the short-term correlation between the S&P 500 index and the crypto sector, traders typically exit risk-on positions during periods of uncertainty.

S&P 500 index nears all-time high

U.S. futures and options expiry and worsening global macroeconomic conditions are likely the culprits behind the crypto market turmoil. According to Bloomberg, the U.S. stock market is facing a “triple witching,” an event that occurs every quarter when derivatives contracts tied to stock, index options, and futures are scheduled to mature. An aggregate of $5.5 trillion is set to expire on June 21, and as the S&P 500 nears its all-time high, investors fear that weaker macroeconomic data indicate a higher recession risk.

Existing home sales in the U.S. fell for the third consecutive month in May, while the manufacturing and services PMI readings for France and Germany came in below expectations. Similarly, in the United Kingdom, the PMI showed that private-sector companies reported slower growth than expected. Lastly, Japan’s inflation rose to 2.8% in May, higher than April’s figure of 2.5%.

Global economy shows signs of slowing

The worsening sentiment was reinforced after retail data provider Syntun stated that China’s annual mid-year e-commerce festival saw sales drop for the first time in eight years. The event celebrates the founding date of Chinese giant JD.com, which is the region’s second-largest in terms of annual sales, according to CNBC. Gross sales reached $102.3 billion in 2024, a 7% drop compared to 2023.

Under this scenario, the U.S. dollar Strength Index (DXY) rose to its highest level in fifty days at 105.85, indicating that investors are moving away from the euro, British pound, Swiss franc, and similar currencies. While the S&P 500 index remained unchanged on June 21, traders viewed Bitcoin’s 52% gains year-to-date in 2024 as a reason to take profits and reduce exposure amid macroeconomic uncertainty.