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A recent study by Binance has examined the recent decline in the overall cryptocurrency market capitalization and the underlying issues affecting the sector. While the market has seen a partial recovery from the steep drop, it remains 14% lower than its peak in March.
Reasons Behind the Recent Decline in the Crypto Market’s Capitalization
The Binance report indicated that the total market capitalization of the crypto sector experienced a significant drop of 11.4% in June, coinciding with Bitcoin selling pressure from the German and US governments.
It is noteworthy that the German government sold 50,000 BTC that had been confiscated from the operator of the Movie2k website. The Bitcoin was sold in several batches, beginning on June 19 and concluding after the government transferred the remaining 3,846 Bitcoin on July 12.
In a similar vein, the US government moved 3,940 BTC on June 26, and Mt. Gox’s initiative to distribute Bitcoin and Bitcoin Cash for creditor repayments, which commenced on July 5, exacerbated the situation.
Additionally, the Binance report pointed out another significant aspect regarding the structural vulnerabilities of the crypto market.
The researchers developed a framework called “Capital, People, and Technology (CPT)” to assess the market dynamics influencing the crypto sector. They contend that this framework suggests a consistent yet gradual decline in capital inflows into the market.
Despite a recent increase, the crypto market has predominantly remained rangebound and is still below its peak in March.
Interested in the developments? We present our CPT framework and analyze several short- and long-term factors in this report.
Continue reading
https://t.co/df20fbuDLa
— Binance Research (@BinanceResearch) July 19, 2024
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Consequently, firms within the crypto market may encounter heightened competition for limited returns, potentially resulting in a scenario where one firm’s success comes at the cost of another. This rivalry may lead to market disruptions, including a decrease in stablecoin supply, reduced exchange liquidity, and more.
Strategies for the Crypto Market’s Recovery
In spite of the challenges and downturn that the crypto market and its capitalization have experienced, there may still be a potential for recovery.
The Binance report indicates that certain positive factors could propel the crypto market towards recovery, possibly allowing its market capitalization to surpass the peak reached in March.
These factors include changes in macroeconomic indicators, such as a gradual decrease in inflation and interest rate cuts, which could rejuvenate the crypto market and elevate its market cap.
The report also mentions the influx of new capital as a favorable factor that could facilitate a gradual recovery for the crypto market.
The crypto market might see new capital inflows on July 23, contingent upon an increase in stablecoin supply and the approval of Ethereum exchange-traded funds (ETFs) for trading on major exchanges.
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