Correction Goes Even Deeper, Bitcoin (BTC) to $33K
The market correction did not stop in the new week, extending liquidations to bring Bitcoin (BTC) down to the $33,500 range. BTC then recovered above $36,000 within hours, possibly escaping a scenario with a dip to the $30,000 range.
BTC crashed to a low of $33,243.11, while Ethereum (ETH) at one point touched $2,172.03. Altcoins suffered even deeper losses, extending the slide from the past week. At this point, the Bitcoin fear and greed index rose slightly to 13 points, still in extreme fear range, after dipping to 11 points.
BTC recovered slightly above $34,000, but not before liquidating positions that were considered the current market bottom. The current market slide may not be over, as some scenarios envision a repetition of other steep price drops similar to 2013 and 2017.
The current correction took BTC to a minimal net gain in the past 12 months, despite achieving two new all-time highs during that period. The latest market slide will solidify bearish attitudes on the market.
Retail traders and short-term leverage faced significant turbulence, and there are signs BTC is in accumulation mode, with no clear expectations in the coming days and weeks.
BTC Keeps Up Mining, Exchange Scarcity
BTC mining difficulty is at an all-time high, showing unprecedented interest in mining. CryptoQuant has followed some trends for BTC that differ from previous cycles.
After a year of high prices, miners are more reluctant to sell. Despite short-term fluctuations, there are hopes BTC may continue with more significant appreciation. Selling is shaking down short-term buyers, with some selling around $42,000. The most recent price dip may also lead to re-accumulation.
Where is the Market Going from Here
After an unprecedented bull market, the question is what the coming year will hold for crypto assets. BTC failed to conform to the stock-to-flow (S2F) model and reach six-figure valuations in December. Some of the scenarios included a new climb to highs in the new year, with expectations for a continued bull market.
BTC prices have gone below the price floor of the S2F model, going much lower. The model allows for some variation and a return to the overall trend, but this time, there are some calls that the model has been invalidated.
The potential for recovery allows for some variation of the S2F model, though the latest dip toward $33,000 diverged from the model significantly.
BTC has recovered from similar price dips, including a record liquidation in May 2021. This time, some of the older wallets still hold onto the coins, with year-old wallets showing significant influence.
Stablecoins Keep Steady Supply
The supply of Tether (USDT) has not increased significantly during the slide in the past two weeks. USDT has around 78.3B tokens outstanding, with no significant mints.
The supply of USDC, however, rose a net 2.5B tokens over the past week, potentially ensuring some buying from the depressed positions.
ETH Dominance Falls
During the latest sell-off, the dominance of ETH fell to 17.4% as the asset depreciated more steeply. At the same time, the collection of smaller altcoins managed to preserve its ratio as part of the overall market capitalization.
In the longer term, however, there is some optimism on ETH as a source of gains in the coming year.
ETH has moved up from lows of under $100 during the March 2020 crash. In the meantime, its influence has grown. As more gaming and DeFi projects demand ETH, the token may turn to higher valuations.
At the same time, ETH may be facing both liquidations and selling pressures, with the potential for trading anomalies.
DeFi Remains Relatively Stable
The improved tools to avoid liquidations meant the value locked in DeFi remains relatively stable. With the presence of assets like USDT, USDC, UST and others, some of the value just moves to another token.
The value locked in DeFi has only dropped to $92B equivalent, showing most protocols managed to preserve some of the value held. The overall valuation of assets locked in DeFi remained more stable in comparison to the value loss of the digital asset market.
What are the Effects of a Bear Market
In 2022, the effects of a prolonged bear market may be felt for multiple game projects and their tokens. A new drive to list a crop of tokens has begun.
This time, Binance is faster to list some of the new assets. Others rely on less liquid exchanges. A bear market will mean a lower appetite for risk and new assets, especially those of games promising future development.
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