Bitcoin (BTC), Markets Erase December Rally Promises
This year’s rallies diverged from the scenario last seen in 2017, when assets moved up almost daily for the final stretch of the year. This year, cryptocurrencies are much more liquid, though still volatile in the short term.
After a period of stagnant prices just under $60,000, BTC crashed on Friday, erasing $9,000 in a single candle. Panic-selling, liquidations and low liquidity sent the price as low as $42,000 on some exchanges.
Since then, BTC regained the $49,000 level. On Monday, the coin traded at $48,980.25, with only a small change since Sunday. The leading asset is still at a significantly higher range since December 2020, but the more optimistic model seems to break down.
BTC Loses Dominance
BTC prices took down market cap dominance to 40.8%, while value shifted to altcoins over the past month. The fear and greed index, based on the recent BTC crash, unraveled to 16 points or “extreme fear”, levels not seen since the May sell-off.
One of the reasons for the BTC crash were signs the leading coin may not follow the stock-to-flow model and climb to above $100,000 as predicted. The recent price is further divergence from the model.
According to the rainbow chart, BTC at this price is at the stage where holding is the best strategy. Prices under $40,000 would be counted as “still cheap” relative to a notion of a general trend over the years.
How Big was the BTC Capitulation
Despite the slower growth of leverage, the December capitulation for BTC was one of the biggest this year. Because of the higher BTC price, the value of liquidations was also among the biggest in history.
Once again, the event pointed to the always present possibility of a liquidation cascade, affecting markets like DeriBit more, but also felt on the Binance futures market. Despite the cautious adding of leverage, futures open interest reached peak levels just before the deleveraging event of December 3.
Glassnode statistics show that the latest selling originated with recent buyers, who may have realized a loss after buying close to the peak.
The panic move resembles the March 2020 shakedown, which happened at a much lower valuation. In the past years, BTC and the market overall has managed to recover from those events and continue with the growth.
Other Assets Step Back from Peak
The past few weeks saw a handful of projects seemingly defy the market. The collection of tokens promising gamified DeFi was among the leaders.
In the past week, outliers included Cardano (ADA), but especially Terra (LUNA). Over the weekend, LUNA managed to defy the crash and mark new all-time highs at $78.19.
LUNA fell down toward the $61 range, as most altcoins erased more than 10% of their value. Altcoin trading on the Binance exchange has varied liquidity profiles, with some assets capable of slipping and erasing 50% of their value. LUNA turned into the biggest loser in the past 24 hours, sinking by more than 24%.
The rise in LUNA value also meant the Terra ecosystem managed to lock in more notional value compared to Solana (SOL). But the latest market moves also revealed that altcoins outperformed mostly at times of BTC stability.
Ethereum Held Better
The liquidation cascade that started with BTC also spilled over into Ethereum (ETH). The asset sank under $4,000 over the weekend, but a slight recovery put ETH at $4,036.94.
Week on week, ETH also moved higher when denominated in satoshis. ETH managed to vault to a new level, rising to 0.0852 BTC from the 0.075 range a few days ago.
Tether (USDT) Printing Came to the Rescue
The latest market crash was followed by a notable injection of Tether (USDT). In the past week, the supply of USDT expanded from about 73.15B tokens to above 75.6B tokens.
The new liquidity has not taken immediate effect, and the price moves still hinge on funding, building up new liquidity on futures markets, as well as the overall attitude of traders.
El Salvador Builds Up BTC Stash
The market drop caused another notable event for El Salvador. The country’s president, Nayib Bukele, is known for “buying the dip”, and remains one of the signals of long-term confidence.
In 2021, large-scale buying and holding continue to diminish the supply of BTC. The likes of Tesla and MicroStrategy are still holding onto their coins. However, short-term selling is still happening near peak prices.
The latest market move is also viewed as a potential manipulation, where large-scale buyers can regain their coins at a lower price. In the past few months, the crashes have not triggered an all-out bear market, with assets showing signs of regaining their levels.
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