Original author: Tanaya Macheel
Original compilation: Qin Jin
Bitcoin plunged on Monday, CNBC reported. The reason was profit-taking selling by investors after Bitcoin rebounded in December.
Bitcoin prices recently plunged more than 7% to $40,887.81, according to Coinbas data, after falling sharply on Sunday night, once falling to $40,300. Bitcoin topped $44,000 last week and traded just below that level through the weekend.
Meanwhile, Ethereum plunged 7% on Monday to $2,202.92. SOL is down 7%, while XRP is down about 8%. According to Coin Metrics data, Bitcoin and Ethereum are set for their worst performances since August 18 and March 9, respectively.
Affected by this, crypto stocks have also been dragged down. Coinbase fell about 5% and MicroStrategy fell 7%. Mining stocks fell by double digits, with the largest mining companies Riot Platforms and Marathon Digital plunging 11% and 12% respectively. Wall Street favorites CleanSpark and Iris Energy plunged nearly 15% and 14%, respectively.
Bitcoin gained 12% in December on growing expectations that the U.S. Securities and Exchange Commission could approve the first spot Bitcoin exchange-traded fund in early January, according to Coin Metrics data. Galaxy Digital estimates that the addressable market size for a U.S. Bitcoin ETF will be about $14 trillion in the first year after launch, rising to about $26 trillion in the second year.
Analyst Will Clemente said the current pullback is not surprising and should happen at some point. He added that these pullbacks are necessary to unwind excessive leverage and make price movements more sustainable.
Clement posted: With Bitcoin almost doubling in two months without any pullback, a correction is not surprising. Corrections shake off weak hands and leverage, creating a stronger foundation for an eventual move higher.
Bitcoin continues to be hot, Rob Ginsberg of Wolfe Research said in a recent client note. Bitcoin trading enthusiasm appears to be unprecedented since the early months of 21, when Bitcoin price reaches all-time high. In October and November, Bitcoin prices rose another 56%.
Bitcoin has been climbing steadily in recent weeks, following a prolonged period of market coolness that saw its price trade within a tight range for months.
A sudden pullback triggers a spike in liquidations. The plunge liquidated more than $520 million in leveraged trading positions in the cryptocurrency derivatives market, primarily longs betting that prices would rise, according to CoinGlass data. It was the largest single-day clearing volume in at least three months, according to company data.
Liquidation is the forced closing of a leveraged trading position, usually because the traders margin to cover the position has been exhausted. Large liquidation events often mark local tops or bottoms in price.
Joel Kruger, market strategist at LMAX Group, noted that a series of liquidations on leveraged longs is exacerbating the current sell-off as traders face margin calls. Additionally, a stronger U.S. dollar could also exacerbate weakness in the cryptocurrency market.
Ginsburg said that the current upward trend of Bitcoin still has a lot of momentum. Analysts agree that the cryptocurrency would have to plummet further before the rally resumes its strength.
The Bitcoin ETF is just the first in a series of positive catalysts for the cryptocurrency over the next year. While potential Bitcoin investors are taking a wait-and-see approach to ETFs, other investors in the market are optimistic about price gains in the months following the Bitcoin halving, which is expected to take place in the spring of 2024.
They are also watching the Federal Reserve -- especially this week, with its final policy meeting of the year on Tuesday -- for clues that the central bank may cut interest rates sometime in 2024.
