Bitcoin plunges, will this bull round end?

On December 11, Bitcoin suddenly rebounded and plummeted, pouring cold water on the current overheated market as various currencies passively lowered their prices. Let’s take a look at this diving market.

Markets: Bitcoin Short-Term Plunge About 7.5%

According to Gate.io The market will be held from 10 am on December 11th. Bitcoin suddenly fell to a low of $40,500.The maximum daily decline was close to 7.5%, marking the largest daily decline since the current upward trend, pouring cold water on the currently hot market.Source: Gate.io

Over the past month, Bitcoin has risen steadily overall, with tokens in sectors such as Inscription, Legacy Public Chain, Artificial Intelligence, GameFi, and L2 rising one after another. The trend has continued. Market enthusiasm continues to rise, with the Market Panic and Greed Index once reaching a historic high of 74. This matches the highs reached by Bitcoin during previous bull markets. We have also written several articles to analyze and explore these popular tracks and overall market trends.

After Monday’s market plunge, Bitcoin’s long-standing defenses were repeatedly pushed aside, repeating past patterns of deleveraging in the market amid market excitement amid massive sell-offs. However, due to the decline of Bitcoin, the overall market situation came to a sudden halt and began to enter a stage of recovery and adjustment.

According to Coinglass data, more than 110,000 people sold positions on the entire network in the 24 hours as of 11 am on December 11, with the total selling amount reaching $386 million. Ethereum and Litecoin both fell more than 4%, Ripple fell more than 6%, and Bitcoin Cash fell more than 8%.

Interpretation: Due to liquidation of leverage due to long squeeze

In the absence of any significant news, most observers believe that a significant reason for this decline could be a long-term leveraged liquidation pin triggered by an overbought market coupled with excessive bullish sentiment. One intuitive piece of evidence is that several large account addresses on the chain were liquidated, worsening the vicious cycle of the situation.

For example, Richard Galvin, co-founder of Digital Asset Capital Management, believes that “the current decline looks more like market deleveraging rather than a fundamental news catalyst.”

“It makes sense to take some profits,” said Tony Sycamore, market analyst at IG Australia. He expects strong support from bargain hunters in the $37,500 to $40,000 range.

Will Clemente, co-founder of Reflexity Research, shares this view, saying in an article that Bitcoin has doubled in two months without any decline and it is not surprising that there has been a current correction. A downtrend will pressure the weaker side and leverage its leverage in the market, creating a more solid foundation for an eventual rally. Bitcoin’s volatility is a feature, not a flaw.

Source: Twitter@WClementeIII

Additionally, Michael Saylor, co-founder of MicroStrategy, tweeted that the decline was aimed at preparing for a runaway surge and was accompanied by strong Bitcoin.

Analyst CredibleCrypto, which has nearly 360,000 followers, is also bullish. He believes that this decline has not taken the price below $40,000 and is likely to result in a V-shaped reversal above $60,000.

In fact, looking at the analysis of the well-known KOLs mentioned above, it is easy to see that everyone generally believes that this short-term decline is a minor interlude to the Bitcoin upward trend. After the market completes its deleveraging, it will help restore the currently overbought market and still remain a positive bullish trend in the long term.

Investing: Although you are optimistic about the market over the long term, you still need to be prepared for short-term risks.

In fact, Bitcoin has sparked investment enthusiasm among participants since the beginning of this year due to factors such as good expectations for the approval of a U.S. spot ETF, the Federal Reserve’s pause in interest rate hikes, and technical oversoldness. The popularity of the BRC20 inscription narrative has also opened a strong upward trend.

In particular, the recent short-term decline may be due more to profit-taking by some short-term speculators and a normal correction in an overbought market.

In fact, compared to historical trends, Bitcoin’s price correction has not been noticeable since the low of $15,468 a year ago, and the cycle of price fluctuations is normal.

As you can see in the figure below, Bitcoin’s maximum drawdown during the recent bull market is still less than 25%, and both the extent and frequency of the drawdowns are much lower than in previous bull markets. This appears to indicate that Bitcoin is gradually evolving into a more mature and stable asset class.

Source: glassnode

As always, the market tends to exaggerate the halving trend in advance. In this round, the bulls have already breached the 50% pullback level of the previous bear market and are just one step away from the strongest resistance level of 61.8%. Therefore, it is not difficult to explain Bitcoin’s somewhat sharp rise and fall amidst its core technical position and the current complex news chaos.

Source: Gate.io

Finally, we must warmly remind everyone that the cryptocurrency market is still in the early stages of development and has high growth potential. Of course, there is also some volatility risk involved. In the current situation where fundamental, technical, and emotional expectations frequently arise, investors must control position leverage and pay attention to short-term fluctuations.

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