Did Germany Cause the Bitcoin Price Correction?
The German state of Saxony selling 50,000 Bitcoin
Germany selling Bitcoin has been the hot topic over the last days. Has it affected the Bitcoin price? This is something I am going to dive into in the following.
Over the last month, starting around June 19, the German state of Saxony began moving Bitcoin out of wallets associated with the German Federal Criminal Police Office (BKA) to sell them. The BKA had seized almost 50,000 BTC ($2.12 billion) from the operators of Movie2k.to, a film piracy website active in 2013.
The BKA received the Bitcoin in mid-January after a ‘voluntary transfer’ from the suspects. Since they started moving Bitcoin out of their wallets in June, their holdings have dropped down to 13.3k Bitcoin as of 6:20pm UTC.
Since the outflows began, the Bitcoin price has declined by about 11%.
So, is Germany responsible for that price drop?
The short answer is no, at least not directly.
Here’s the longer explanation:
Analyzing Trading Hours and Price Movements
To understand the situation better, let’s examine the trading hours and month-over-month price drawdowns over the last few months. We will split the chart into EU, Asia, and US trading hours. Working hours are defined as:
- US: 8 am to 8 pm Eastern Time (13:00–01:00 UTC)
- EU: 8 am to 8 pm Central European Time (07:00–19:00 UTC)
- Asia: 8 am to 8 pm China Standard Time (00:00–12:00 UTC)
While drawdowns during EU trading hours occur, they are more pronounced during US trading hours. Particularly in the last five days, the month-over-month drawdowns have occurred mostly during Asia trading hours. This indicates that Germany is not directly responsible for most of the price drawdowns since German government officials would likely not work during the night to sell their Bitcoin holdings.
Not convinced? Luckily, here, the wallet flow data comes in handy.
Wallet Flow Data
Wallet flow data offers further insights. The German authorities do not seem to sell all their holdings over-the-counter but also appear to be active on exchanges. This is good for us, as this provides us with further insights regarding their behavior.
We observe wallet outflows during the day (in Europe) and flows back to the wallets in the evenings around 6–8 pm UTC, which is evening time in Germany.
Why would they do this? It seems they set up limit sell orders during the day, and when officials go home in the evening, they close any unfilled limit order and transfer the remaining Bitcoin back to their wallets. This is likely done for security reasons, as they do not want to leave large sums of Bitcoin on the exchanges overnight (at least they appear to understand the phrase “Not your keys, not your coins!”).
Impact on the Market
The direct effect of the German authorities selling their Bitcoin holdings appears small relative to the overall market. Even on days with significant outflows, such as June 8 with Bitcoin outflows worth $740 million (about 12.36k Bitcoin), this amount is small compared to overall market liquidity. According to Messari.io, real trading volumes usually range between $10 billion and $35 billion. Overall, the Bitcoin market is very liquid.
More likely, the narratives play an important role here. The hype surrounding the sales from Germany and the announcement that Mt. Gox will release coins to creditors may have pushed people to sell their Bitcoin.
Conclusion
In conclusion, while the German government’s actions have had some influence, they are not the primary driver behind the recent price drop (at least not directly. The effect on Bitcoin’s price movements is more indirect, with narratives and sentiments playing a more substantial role.
With the German state of Saxony, at the current pace, possibly finishing the sale of all its 50k Bitcoin, will this month go down in history as something equivalent to Bitcoin Pizza Day? Perhaps it will be remembered as the Bitcoin Keine Ahnung (BKA) Month [Eng.: Bitcoin No Idea Month].
