Crypto market overreaction, government Bitcoin sell-off not that impactful

Since June, the Bitcoin market has been flooded with several whale sell-offs.

These sell-offs have mostly come from miners and other whales, with a portion also from the German and US governments.

Due to the large scale of transactions, government sell-offs can be classified as whale movements.

Market participants have been overly sensitive to government sell-offs, overreacting and attributing market turmoil to these sell-offs.

However, Ki Young Ju, the founder and CEO of CryptoQuant, disagrees with this perspective.

According to him, the reaction to government-related wallet sell-offs has been largely overestimated, based on the cumulative value of Bitcoin inflows over the past year.

Government Bitcoin sales are overestimated

In the past two weeks, addresses associated with the US and German governments have sent over $737 million worth of Bitcoin to cryptocurrency exchanges Coinbase, Bitstamp, and Kraken.

By nature, these transfers might simply be exchange sell-offs. It is particularly noteworthy that these transfers occurred during a month-long Bitcoin price decline, which increased sell-off pressure.

While headlines about "government dumping Bitcoin" may trigger fear, uncertainty, and doubt (FUD) within the crypto community, the issue is not as severe as it seems.

Although the government has indeed liquidated some Bitcoin investments, from a macro perspective, the sell-offs are not that significant.

According to CryptoQuant data shared by Ki Young Ju, Bitcoin has received over $224 billion in inflows since 2023, with only 4% related to government-seized assets. Furthermore, the data shows that since 2023, government-seized BTC has contributed approximately $9 billion to the realized market value.

From these realized market value figures, it is evident that government-held Bitcoin does not possess significant power and is negligible compared to the available market funds.

Realized market value is a unique way to observe Bitcoin's true valuation.

It considers the last price each BTC moved from its previous location, providing a more accurate understanding of how much fiat currency has actually flowed into BTC.

FUD is rising, but the situation isn't that bad

This view is a balanced response to recent BTC price activities characterized by substantial spot sell-offs due to transfers from wallets associated with the defunct exchange Mt.Gox and ongoing government sell-off activities.

According to crypto intelligence firm Arkham, two entities on the radar are Germany and the US, with the former still holding 41,200 BTC seized from various bad actors over the years.

Meanwhile, the Crypto Fear and Greed Index shows market sentiment approaching "extreme fear."

However, Ki Young Ju believes that this panic, based solely on government actions, is baseless. "This accounts for only 4% of the cumulative value since 2023," he reasoned.

Will BTC prices continue to fall?

Market observers remain cautious about key long-term support levels as multiple trend lines have been broken.

The supertrend bottom of $52,000 is one of the levels closest to the spot price, with calculations indicating a possible return to $45,000 to align the latest decline with historical standards.

Meanwhile, "classic" bull market support levels are now far above the 200-day moving average, with short-term Bitcoin holders' cost bases at $58,550 and $64,175, respectively.

BTC/USD hit a four-month low of $53,500 on July 5, trading at $56,834 at the time of writing.