Behind Bitcoin's plunge
TechFlow Selected TechFlow Selected
Behind Bitcoin's plunge
The reason could be profit-taking by investors following Bitcoin's rebound in December.
Navigating Web3 tides with focused insightsBy Tanaya Macheel
Translated by Qin Jin
Bitcoin plunged on Monday, according to CNBC, as investors took profits following its December rebound.
Bitcoin dropped more than 7% to $40,887.81, according to Coinbase data, after falling sharply late Sunday to as low as $40,300. The cryptocurrency had briefly broken above $44,000 last week and traded slightly below that level throughout the weekend.
Meanwhile, Ethereum fell nearly 7% on Monday to $2,202.92. SOL declined by 7%, while XRP dropped around 8%. According to Coin Metrics, both bitcoin and ether are on track for their worst performance since August 18 and March 9, respectively.
Crypto-related stocks were also hit. Coinbase fell about 5%, while MicroStrategy dropped 7%. Mining stocks declined double digits, with top miners Riot Platforms and Marathon Digital plunging 11% and 12%, respectively. Wall Street favorites CleanSpark and Iris Energy tumbled nearly 15% and 14%, respectively.
Bitcoin rose 12% in December, driven by growing expectations that the U.S. Securities and Exchange Commission may approve the first spot bitcoin exchange-traded fund in early January, according to Coin Metrics. Galaxy Digital estimates the addressable market size for U.S. bitcoin ETFs will reach approximately $14 trillion in the first year and grow to about $26 trillion in the second year.
Analyst Will Clemente said the current pullback isn't surprising and was due at some point. He added that such corrections are necessary to unwind excessive leverage and make price movements more sustainable.
"Bitcoin nearly doubled over two months without any correction—some pullback is not surprising," Clemente posted. "Corrections shake out weak hands and leverage, laying a stronger foundation for future gains."
"Bitcoin remains red-hot," Rob Ginsberg of Wolfe Research wrote in a recent client note. Bitcoin trading enthusiasm appears unmatched since early 2021, when prices reached record highs. In October and November, bitcoin surged another 56%.
In recent weeks, bitcoin has been climbing steadily after a prolonged period of market apathy, during which prices traded sideways within a narrow range for several months.
The sudden reversal triggered a wave of liquidations. Over $520 million in leveraged positions were wiped out across crypto derivatives markets, primarily longs betting on further price increases, according to CoinGlass. This marks the largest single-day liquidation event in at least three months, per the firm's data.
Liquidations refer to the forced closure of leveraged trades, typically because traders have exhausted their margin for additional collateral. Large-scale liquidation events often signal local price tops or bottoms.
Joel Kruger, market strategist at LMAX Group, noted that cascading liquidations of leveraged long positions intensified the current sell-off as traders faced margin calls. Additionally, a stronger dollar may also be contributing to weakness in the crypto market.
Ginsberg said the upward momentum in bitcoin remains strong. Analysts agree, however, that a deeper decline would be needed before seeing a renewed rebound in force.
A bitcoin ETF is just the first of a series of positive catalysts expected for cryptocurrencies next year. While potential bitcoin investors remain on the sidelines awaiting ETF approvals, other market participants are optimistic about price gains in the months following the halving, which is expected in spring 2024.
They're also closely watching the Federal Reserve—especially this week, as the central bank holds its final policy meeting of the year on Tuesday—for clues on when rate cuts might begin in 2024.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
