Crypto markets have had a rough few weeks. Bitcoin has shed more than 15% over the past month; ethereum and solana have fared even worse.
Several forces converged at once. The US labour market delivered a surprise: nearly double the jobs expected by economists were added in May. That sounds like good news, but resilient employment data lowers the bar for a rate hike. The prospect of higher-for-longer interest rates tends to shift capital away from speculative assets.
A significant consequence of broader market pressure was that institutional selling through bitcoin ETFs persisted and amplified the downturn. US spot bitcoin ETFs recorded a historic $3.4bn in net outflows during a single week in early June, the largest weekly exodus since these products launched in January 2024. When ETF holders redeem shares, issuers must immediately sell the corresponding bitcoin holdings, creating a loop in which declining prices trigger more redemptions, generating additional selling pressure.
In addition, bitcoin may be losing the competition for speculative capital as traders chase hotter trades like AI infrastructure and the SpaceX IPO. Investor interest has been shifting away from crypto towards AI and semiconductor stocks.
Next, the Mt Gox estate moved 10,422 bitcoin (worth over R12bn) out of cold storage. Bitcoin, already under pressure, slid further. For a hack that occurred over a decade ago, Mt Gox retains a remarkable ability to rattle sentiment, as creditors who have waited to recover their funds now sit on holdings worth multiples of what they originally lost.
When that bitcoin finally hits the market, will they sell it? That uncertainty won’t be cleared until October, when the distribution deadline expires.
The 15% drop in bitcoin over the past month is substantially lower than in previous cycles, where we saw peak-to-trough declines of 50%-80%
And then there’s Michael Saylor. For years, his company, Strategy, operated as bitcoin’s institutional champion, accumulating relentlessly and vowing never to sell. That changed in May, when Strategy sold 32 bitcoin (out of its more than 800,000 holdings) to fund dividend payments. While the initial sale was small, markets trade on symbolism as much as substance. Strategy purchased 1,550 bitcoin in early June for around $101m, a move widely read as Saylor doubling down on his long-term thesis and signalling that the sale was not a change in strategy but an administrative move.
To put the current drawdown in context, the 15% drop in bitcoin over the past month is substantially lower than in previous cycles, where we saw peak-to-trough declines of 50%-80% and recoveries that dwarfed the losses. In the past, cryptocurrency has served as an early warning signal of risk-off sentiment in financial markets, but US equity markets appear to be holding up right now.
Analysts are asking whether they are buoyed by AI optimism and strong earnings from large tech stocks, with many suggesting that this is hype that has yet to be stress-tested. The war has had an impact, the US economic data is sending mixed signals and the Federal Reserve is hawkish, creating an environment where speculative assets are likely to take a hit.
What happens when some of the uncertainty clears? The Mt Gox distribution deadline falls at the end of October, eliminating one long-standing source of uncertainty. Seasonal patterns suggest October has historically marked a turning point in cryptocurrency cycles, suggesting that if the clouds clear, crypto has a history of bouncing back.
The disquiet is uncomfortable, but it is not new. For South African investors thinking in rand, maintaining some exposure in a diversified portfolio still makes sense.
Christo de Wit is the country manager for Luno South Africa
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