Exuberant Bitcoin (BTC) rally melted down last week over concerns of Mt. Gox’s movement of a large number of Bitcoin (BTC) from its wallet to an unknown wallet. Many believe that the recent correction took place due to Mt. Gox’s dumping of a large number of Bitcoin (BTC) on the open markets. While this may appear to be a good argument to blame the recent correction on someone, it does not look very plausible when examined closely.
First of all, the recent correction took place because Bitcoin (BTC) was highly overbought and it was time to slow down as investors took profits. Additionally, professional investors examine historical data and base their decisions on established patterns that tend to repeat themselves. If you look at the above weekly chart for BTC/USD you will see that it is exactly what was supposed to happen. While I cannot rule out the possibility that Mt. Gox might have had something to do with that, I can say for sure though that any savvy investors who had has eyes on this big picture would have expected a correction, taken his profits and waited on the sidelines, or better yet opened sell positions.
Once again mainstream Bitcoin (BTC) investors are concerned about movement of a large number of Bitcoin (BTC) by Mt. Gox. While it is possible that last time Mt. Gox sold Bitcoin (BTC) over the counter (OTC) to big investors who could have then dumped their BTC on open market driving the price down, this time around, the circumstances are different.
There is a high likelihood that after the recent notoriety of Mt. Gox, a large number of institutional investors approached them regarding over the counter (OTC) purchase of Bitcoin. “Why do these institutional investors need to buy directly from Mt. Gox”, you ask. Well, the reason is simple: they do not want to affect the price. If institutional investors went to Binance or Bitfinex and placed their buy orders, it would drive the prices astronomically and these institutional investors might not be able to buy in. Even if they get in, many would sell to take profits and these institutional investors will be left holding the bags.
In circumstances like these when Bitcoin (BTC) is gaining a lot of popularity among the general public, something like Mt. Gox is a miracle for these institutional investors. They can take Bitcoin (BTC) off Mt. Gox’s hands and load up their reserves to sell to their clients. For instance, if JP Morgan buys 10,000 Bitcoin from Mt. Gox now, they know that they are buying at the bottom and the price will appreciate in the coming months. So, they will hold their BTC and sell it to their clients as Bitcoin (BTC) or its derivatives or futures. While holding that bag of Bitcoin (BTC) it is in the interest of these institutions to allow the price to appreciate so that the trade volume grows, hence their exchange trading fees and at the same time the Bitcoin (BTC) they hold will also appreciate in value.