Today, Tuesday, December 12, 2023, the market value of Bitcoin has experienced dramatic fluctuations, with a so-called price crash. Monitoring Bitcoin's four-hour relative strength index (RSI) shows that at one point it quickly fell into the oversold category, hitting a low of $40,000, with its RSI slipping below 30, although this did not last long. Many investors may not have realized what was happening, as the M250 support line, which was supposed to stabilize the market, was easily broken like paper, and the price even showed a trend of testing the M200 moving average, which is around $38,800. #BTC
Despite the sharp drop, the price of Bitcoin subsequently witnessed a rebound. However, just a few hours later, the market showed a downward trend again. According to the liquidation data, the total liquidation of the entire network exceeded US$500 million in the past day, causing a large number of investors holding long positions to liquidate and exit. From the liquidation heat map, a large number of liquidations occurred in the $43,500 area, which in turn triggered a larger round of price declines. The current trading price has reached around $44,500, and it shows considerable liquidation momentum here.
In the short term, it seems difficult for Bitcoin to stabilize and rise above $44,500. We have been keeping an eye on the $45,000 resistance, but the market has failed to break through it, and with the next resistance at $48,000, selling pressure is expected to increase. The two price points we have focused on in the past now seem less critical as the market price has moved away from these levels.
The latest round of Bitcoin decline is about 7%, and some even think it is close to 10%. More than a billion dollars of open contracts in the market have been liquidated. Such market fluctuations are not uncommon in recent days and weeks. Given that there will be some important economic data released this week and the historical performance of Bitcoin, we can foresee that the market will have a larger range of fluctuations in the next few days.
Talking about Bitcoin's wild price swings, the market has actually seen a swift price correction just this Monday, and the market may not have adjusted to such a move compared to the previous weeks. This time it was a swift market cap correction, or what people call a flash crash. The market recovered quickly after that. Although this situation is surprising, it is not a surprise to those who pay attention to the market. Molu previously mentioned that the market is likely to experience a large-scale correction before the halving event. This is similar to what the chart shared by Crypto bullet shows. It is not certain whether this drop is the final deep retracement before the halving, but considering that the final ruling on Bitcoin-related spot ETFs is about to take place, we should be more cautious.
Market events are subject to change, and we may still experience some declines in January, but overall, the trend appears to be heading upwards. Bitcoin has recently been trending upward for eight consecutive weeks, and market sentiment has been significantly positive, resulting in a significant increase in the use of leverage. A decline of 7% or close to 10% from the year's high is not a pessimistic price decline, nor is it a true market crash, so there is no need to worry too much. The current market environment remains relatively illiquid, and although the use of leverage is quite widespread, this is what triggers a more dramatic correction or liquidation. Molu believes that the market’s price adjustment is reasonable and will contribute to the healthy growth of prices in the future. Although some negative news has driven the market over the past 24 hours, extreme market behavior has actually not had much impact. It's simply that the large amount of leverage amplifies the impact of this trend.
On the whole, Molu believes that it is unlikely that the price of Bitcoin will fall to $25,000. This possibility is very small. Considering the 200-day or 200-week moving average mentioned in the Ark report, as well as the holding costs of short-term holders, which are all around $30,000, this area is likely to form a strong support. Therefore, Molu believes that a prediction of a drop to $25,000 is too exaggerated, unless there is a global crisis situation, such as the COVID-19 epidemic in March 2020. In that case, the price of Bitcoin may even fall by more than 50%. Judging from the data of open contracts, as the price rises, the amount of Bitcoin affected by positions is also increasing. If we only look at the open interest of Bitcoin contracts on the Chicago Mercantile Exchange (CME), we will find that they are close to the level at the peak of the bull market in 2021, and the long leverage is growing, which suggests that the market may need a certain degree of adjustment. Bitcoin has not experienced any significant price correction for a long time during its rise. If there is no timely adjustment, then the market will eventually face a more drastic price adjustment than this time.
Therefore, it is a better strategy to make some small price adjustments from time to time and maintain a steady and continuous upward price trend, rather than a rapid growth in one direction, which eventually requires a larger price correction. Many people now expect that there is a trend in the market to fill the CME price gap between $39,000 and $40,000 in the coming days. The Chicago Mercantile Exchange is mainly used by US institutional investors, and its trading schedule is different from the regular market, while Bitcoin is traded all the time around the world, whether it is weekdays, weekends or holidays. The Chicago Mercantile Exchange is closed for about two days during the weekend, during which time, although the price of Bitcoin is still volatile, CME cannot be traded. If Bitcoin starts at $39,000 on the weekend and the price rises during this period, when the CME reopens, if the price is above this level, a price gap may be formed. In most cases, such gaps will eventually be filled.
Analysts on Twitter have looked at about 30 so-called CME price gaps that have occurred previously and found that 28 of them were eventually filled. Many investors now believe that the market is likely to start trying to fill this gap in the next few days. Current market conditions suggest that $39,000 is not an unattainable target.
This market value correction does not need to cause excessive concern, it is far from a devastating collapse. Molu believes that the market has expected such fluctuations, and the price will experience some adjustments. This is a normal correction process. From the perspective of the Stablecoin Supply Ratio (SSR) indicator, there is a clear growth trend in the SSR throughout 2023, which shows that Bitcoin has a relatively higher value than stablecoins. The additional value of Bitcoin by market participants may also be one of the factors driving the price increase.
However, there is a tendency for investors to cash out Bitcoin for stablecoins, but this usually occurs in the late stages of a bull market when investors believe that prices have reached their peak. Judging from the Bitcoin stocks of different holders, they are actively increasing their purchases. Even the group of holders who have held for a year are actively increasing their holdings, showing that the price of Bitcoin has not reached their psychological price. The next stage of the market is that the supply of Bitcoin for these holding groups begins to decrease, usually after a sharp rise in prices, and the market reaches a price high shortly after reaching a certain low point. Currently, SSR has begun to show a downward trend in early 2021, which means that the current market price has not yet reached the psychological high expected by investors.
If there is any negative news, it may come from US Senator Elizabeth Warren, who has always been against cryptocurrencies. Her bill to take tough measures against the cryptocurrency industry has once again become the focus of discussion and has won the support of five other senators. The bill is called the "Digital Asset Anti-Money Laundering Act" and aims to extend the various requirements of the Bank Secrecy Act, including the "Know Your Customer" (KYC) rules, to miners, validators, wallet providers, etc. The bill also proposes that the crypto industry should be subject to strict restrictions and enjoy the same transparency constraints as traditional banks to prevent the industry from being used for illegal activities by radical enterprises or rogue countries, including anti-money laundering and financing of terrorism. If this bill is passed, it may put some pressure on the cryptocurrency market.
Their belief that the digital currency sector is a new frontier full of opportunities has attracted the attention of legislators and President Biden. In particular, Senator Warren's attention in congressional hearings is noteworthy, especially in recent months, as she has continued to promote related legislation.
Nevertheless, Molu tends to think that this is not the most critical factor affecting the market. We should actually pay more attention to the impact of leveraged long positions on the market. Soon, we will usher in the latest inflation CPI data, and the final value is expected to be 3.2%, while the market's previous expectation is 3.1%. This indicates that the market generally expects US inflation to continue to decline. If the data results are consistent with expectations or the decline exceeds market expectations, similar to the last situation, it may have a positive impact on cryptocurrencies such as Bitcoin. However, if the inflation rate rises, it may have an adverse impact on the digital currency market.
