Bitcoin (BTC) recently experienced a sharp drop in price, briefly dipping below $41,000. This decline was accompanied by millions worth of long liquidations in the cryptocurrency market. Despite the decline in the market leader’s price, BTC still saw a 150% increase in value since the start of the year, driven by expectations of SEC approval for Spot Bitcoin exchange-traded funds and the anticipation of the U.S. Federal Reserve possibly reducing interest rates in 2024. Technical indicators on BTC’s chart pointed to a bearish trend, but some analysts remained optimistic about BTC's long-term prospects, emphasizing the normalcy of price pullbacks and the possibility of new highs in the future.
BTC’s Visit Below $41K
Yesterday, BTC experienced a rapid drop in price, briefly dipping below the $41,000 mark. This sudden decline amounted to a 6.5% decrease, as BTC's value fell from $43,357 to a low of $40,659 in just 20 minutes. On Dec. 11, CoinGlass statistics indicated that long liquidations amounted to $86 million. When considering cross-crypto long liquidations for the day, the total exceeded $300 million. However, prior to BTC's price decline, several indicators emerged, according to on-chain analysis. Julio Moreno from CryptoQuant observed that Bitcoin's price began to overheat following its rally past the $40,000 threshold.
Additionally, Mara Pool, a big player in the Bitcoin mining industry, opted to sell a portion of their holdings following the market leader’s recent peak. Another noteworthy aspect is that more than half of the existing Bitcoin was yielding profits for its owners. This scenario often foreshadows some selling activity when the market reaches its peak.
Nonetheless, it is worth noting that BTC was still up by over 150% since the beginning of the year. This upward trend has been primarily fueled by the anticipation that the United States Securities and Exchange Commission (SEC) will greenlight several Spot Bitcoin exchange-traded funds (ETFs).
Also contributing to BTC's surge is the broader market expectation that the U.S. Federal Reserve will commence reducing interest rates around the middle of 2024. Investors are also gearing up for the upcoming round of inflation data and the final Federal Open Market Committee meeting of 2023. Most analysts are anticipating improvements in core inflation and are betting on the Fed maintaining its current interest rate levels.
The rest of the week will feature a unique set of U.S. macroeconomic data releases. The Consumer Price Index (CPI) and Producer Price Index (PPI) for November will be released on Dec. 12 and Dec. 13, respectively. Notably, the PPI release coincides with the day the Federal Reserve (Fed) decides on potential changes to interest rates.
However, the path forward for the markets seems clear at the moment: no expected changes in interest rates by the Federal Open Market Committee (FOMC) this month, but potential rate cuts are anticipated in mid-2024. Following the FOMC decision, Federal Reserve Chair Jerome Powell will give a speech and hold a press conference. Traders should keep in mind that these events have historically led to volatility in risk assets.
BTC Price
BTC was resting on the key support level at $40,900 at press time following the strong correction during yesterday’s trading session. The strong move down seems to have shifted short-term momentum in favor of sellers as well. Both the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) indicators were flagging bearish.
Daily chart for BTC/USDT (Source: TradingView)
The MACD line crossed below the MACD Signal line over the past 24 hours. This is a significant bearish technical flag and is indicative of a bearish trend reversal. Meanwhile, the RSI line was positioned below the RSI Simple Moving Average (SMA) line. The orientation of these two lines could be a sign that sellers have the upper hand against buyers.
If these technical flags are validated, BTC could fall to as low as $38,700 in the short term. There is still a chance for the market leader’s price to rise. Should BTC remain above $40,900 in the next 72 hours, it may rebound from the key support level and climb to $44,500. Thereafter, continued buy pressure at this point may lead to BTC rising to $48,000.
BTC Price Decline Not Such a Bad Thing?
Following the correction in BTC’s price, seasoned analysts and commentators remained relatively unfazed, even emphasizing the normalcy and healthiness of such price pullbacks. Additionally, despite the drop, many experts are predicting new highs for the cryptocurrency king in the near future.
The popular phrase in the crypto world, "Nothing goes up in a straight line," seemed to resonate with many market participants who expressed their relief. BitQuant, a well-known crypto commentator, reassured subscribers on X (formerly Twitter) that pullbacks were a natural part of the market cycle. He emphasized that hourly fluctuations held little significance in the grand scheme of things. BitQuant also pointed towards the potential for new higher highs in the week ahead, with a target of $48,000.
Michaël van de Poppe, the founder and CEO of MN Trading, shared the sentiment that big things are still in store for BTC. He particularly addressed the frustration of altcoin traders, acknowledging that market corrections, especially with altcoins, could be quite deep due to liquidity issues. Van de Poppe encouraged investors not to stress, hinting at a shift in momentum from Bitcoin to Ethereum in the next quarter.
Tony Sycamore, an analyst at IG Markets Australia, noted that after eight weeks of consistent gains, a sudden decline in Bitcoin's price should not be a major surprise or cause for excessive concern. In fact, he viewed it as a healthy development that could help alleviate some of the speculative excesses that had built up in recent weeks. Sycamore pointed out a strong support level for Bitcoin between $40,000 and $37,500, suggesting that as long as this support band holds, the uptrend could continue toward the $50,000 to $51,000 range.
