Bitcoin experienced a significant drop, marking its most notable decline in nearly four months, prompting profit-taking among traders following a staggering 150% surge this year. This led to substantial liquidation of optimistic positions.
The largest cryptocurrency plummeted by 7.5% on Monday, its most significant intraday dip since August 18. While it recovered slightly, it remained 3.3% lower at $42,383 in London. The broader cryptocurrency market followed suit, with the top 100 digital assets index witnessing its most substantial slide since November 22.
Richard Galvin, co-founder of Digital Asset Capital Management, highlighted the rise in market leverage, suggesting that the recent decline is a result of market deleveraging rather than any fundamental news catalyst.
Data from Coinglass revealed that approximately $312 million worth of cryptocurrency trading positions, betting on higher prices, were liquidated on December 11, the highest since at least mid-September.
Bitcoin’s surge this year was driven by expectations of regulatory approval for the first US exchange-traded funds directly investing in the token, expanding the potential investor base. Anticipation of a Federal Reserve interest rate cut in 2024 further fueled the rally.
Investors brace for US inflation data and the Fed’s final policy meeting of 2023 this week, events that could challenge aggressive bets on rate cuts. Global stocks and US equity futures showed mixed performance, reflecting cautious sentiment as the dollar gauge edged up.
Tony Sycamore, a market analyst at IG Australia Pty, anticipates that Bitcoin’s falls towards the $37,500 to $40,000 range will likely find support from buyers capitalizing on dips.
Despite the substantial year-to-date surge, Bitcoin remains significantly below its pandemic-era peak of nearly $69,000 set over two years ago. Caroline Mauron, co-founder of Orbit Markets, believes that a “less hawkish” message from the Fed might prompt a retesting of Bitcoin’s recent high near $45,000.
