On December 11th, Bitcoin suddenly turned around and plummeted, with various currencies passively lowering their prices, pouring cold water into the current overheated market. Let’s take a look at this diving market.
Market: Bitcoin’s Short-Term Dive Nearly 7.5%
According to the Gate.io market, starting at 10 am on December 11th, Bitcoin suddenly plunged to a minimum of $40,500, with the largest daily decline approaching 7.5%, marking the largest single-day decline since the current upward trend, pouring cold water into the current hot market.Source: Gate.io
Over the past month, Bitcoin has been in a stable upward trend overall, with tokens in sectors such as Inscription, Legacy Public Chain, Artificial Intelligence, GameFi, and L2 taking turns to rise. Market enthusiasm continues to rise, and the market panic and greed index once reached a historical high of 74, which is consistent with the highest point reached by Bitcoin in the previous bull market. We have also written several articles to analyze and explore these popular tracks and overall market trends.
After a sudden drop in the market on Monday, the long defensive line of Bitcoin was repeatedly pushed back, and under the massive sell-off, the past pattern of deleveraging in the market under the excitement of the market was reproduced. However, due to the decline of Bitcoin, the overall market situation also came to a sudden halt and began to enter the stage of repair and adjustment.
According to Coinglass data, as of 11:00 am on December 11th, the number of people who sold out positions on the entire network in 24 hours exceeded 110,000, with a total amount of $386 million sold out. Ethereum and Litecoin both fell by more than 4%, Ripple fell by more than 6%, and Bitcoin cash fell by more than 8%.
Interpretation: Due to Leverage Liquidation Caused by Long Squeeze
In the absence of significant news, most observers believe that the important reason for this decline may be the long leverage clearing pin triggered by the overbought market with excessive bullish sentiment. One intuitive piece of evidence is that multiple on chain large account addresses have been liquidated, exacerbating the spiral of the situation.
For example, Richard Galvin, co-founder of Digital Asset Capital Management, believes that “the current decline looks like market deleveraging, rather than any fundamental news catalyst.”
“It makes sense to see some profit taking,” said Tony Sycamore, a market analyst at IG Australia. He expects strong support from bargain hunters to fall into the $37,500 to $40,000 range.
Reflexity Research co-founder Will Clemente shares this view, stating in an article that Bitcoin has doubled in two months without any pullback, and it is not surprising that there has been a correction now. A pullback will squeeze the weaker side and leverage out of the market, laying a more solid foundation for the ultimate rise. The volatility of Bitcoin is a characteristic, not a flaw.
In addition, Michael Saylor, co-founder of MicroStrategy, tweeted that this round of decline is to prepare for a stampede and is accompanied by a Bitcoin bull.
Analyst CredibleCrypto, who has nearly 360.000 followers, is also optimistic. He believes that this decline has not fallen below $40,000 and is likely to result in a V-shaped reversal, breaking through $60,000.
In fact, it is not difficult to see from the analysis of the well-known KOLs mentioned above that everyone generally believes that this short-term decline is a small interlude to the upward trend of Bitcoin. After the market completes deleveraging, it will help repair the current overbought market, and in the long run, it will still be positively bullish.
Investment: Bullish on the Market for A Long Term, But Still It Is Needed to Guard Against Short-term Risks
In fact, since the beginning of this year, Bitcoin has sparked investment enthusiasm among participants driven by factors such as the good expectations of spot ETFs being approved in the United States, the Federal Reserve suspending interest rate hikes, and technical oversold. The popularity of BRC20 inscription narratives has also opened up a strong upward trend.
Specifically, the recent short-term decline can be attributed more to profit-taking by some short-term speculators and normal adjustments in the overbought market.
In fact, if compared to historical trends, since the lowest of $15468 a year ago, the price correction of Bitcoin has not been prominent, and the rotation of price fluctuations is also normal.
As shown in the figure below, the maximum decline in Bitcoin in the recent bull market is still less than 25%, and both the magnitude and frequency of the decline are far lower than in previous bull markets. This seems to indicate that Bitcoin is gradually evolving towards a more mature and stable asset class.
As usual, the market tends to hype up the halving trend in advance. In this round, the bull market has already broken through the 50% pullback level of the previous bear market and is only one step away from the strongest 61.8% resistance level. Therefore, under the key technical position and the current complex news disturbance, it is not difficult to explain the slight sharp rise and fall of Bitcoin.
Finally, we still need to make a warm reminder to everyone that the crypto market is still in its early stages of development and has high potential for growth. Of course, it is also accompanied by some volatility risks. In the current situation where frequent expectations occur in fundamentals, technology, and emotions, investors should control their position leverage and be cautious in dealing with short-term disturbances.