- December 13, 2023
- Posted by: [email protected]
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The recent decline in the cryptocurrency market, with Bitcoin leading the way by dropping sharply towards $40,000, has caught the attention of crypto analysts. Unlike previous market movements triggered by specific fundamental news events, this downturn is being interpreted as a result of deleveraging. Deleveraging refers to the reduction of borrowed capital in financial markets, often leading to the sale of assets to meet obligations or reduce risk exposure.
Bitcoin, the flagship cryptocurrency, experienced a rapid 7.5% decline to $40,521 before partially recovering to trade at $42,165 at the time of writing, indicating a 3.7% decrease. This downward trend extended to other major cryptocurrencies like Ethereum (ETH), XRP (XRP), Polkadot, and Cardano (ADA), resulting in an approximate 4% drop in the top 100 digital assets, as measured by a market index.
The cryptocurrency market, known for its volatility, is often influenced by various factors, including market sentiment, regulatory developments, and macroeconomic trends. However, in this case, analysts suggest that the market’s response is more indicative of a deleveraging phenomenon than a reaction to any specific news catalyst.
Bitcoin’s impressive rally throughout the year has been driven by expectations of regulatory approval for the first US exchange-traded funds directly investing in the cryptocurrency. This anticipation has broadened the potential investor base for digital assets. Additionally, bets on the Federal Reserve cutting interest rates in 2024 have further fueled the broader rally in Bitcoin and the overall virtual currency market.
According to Richard Galvin, co-founder of Digital Asset Capital Management in Sydney, the current downturn is due to a market-wide deleveraging process rather than specific fundamental news. Capital Coinglass data shows that around $299 million worth of crypto trading positions, betting on higher prices, were liquidated on December 11, marking the highest tally since mid-September.
As investors exercise caution ahead of US inflation data and the Federal Reserve’s final policy meeting in 2023, there is a sense of prudence regarding aggressive wagers on potential rate cuts. Global stocks and US equity futures have displayed fluctuating trends, reflecting a cautious sentiment among investors.
Market analyst Tony Sycamore from IG Australia Pty noted that traders typically take profits during this period and expect the price declines towards the $37,500 to $40,000 range to be well-supported by dip buyers. Despite Bitcoin’s remarkable surge of over 150% year-to-date, contributing to the broader recovery in digital asset prices after a challenging 2022, the cryptocurrency remains below its pandemic-era record of nearly $69,000 set just over two years ago.
Bitcoin’s resilience is evident in its climb to a more than 19-month high, showcasing a gain of over 14% in the past month. This is noteworthy when compared to global shares and bonds, which have faced losses since the beginning of the week, emphasizing the current low correlation between cryptocurrencies and traditional macro assets. Sean Farrell, the head of digital-asset strategy at Fundstrat Global Advisors LLC, highlighted Bitcoin’s diminishing correlations with stocks and gold throughout 2023, driven by specific factors within the crypto market, including the anticipation of the United States approving its first spot Bitcoin exchange-traded funds (ETFs).
