Bitcoin faced a notable downturn on December 11, witnessing a 7.5% drop to approximately $40,640. Several factors played a role in this decline, revealing key insights into the cryptocurrency market’s dynamics.
The drop highlighted a significant wipeout in leverage, particularly in the context of overbought conditions. Bitcoin’s daily relative strength index (RSI) exceeded 70 since December 5, signaling overvaluation. Overbought RSIs often precede market tops as buyer enthusiasm wanes and sellers enter the scene.
On-chain indicators, such as Bitcoin’s net unrealized profit/loss (NUPL) indicator, indicated exhaustion among traders, surpassing 0.5 for the first time since December 2021. This suggests that a considerable portion of Bitcoin investments is currently in unrealized gains, increasing the likelihood of profit-taking during market peaks.
Tracking Bitcoin miners’ reserves strengthens the profit-taking narrative. A substantial drop in miners’ BTC holdings, coupled with increased flows to crypto exchanges, suggests a trend of profit securing. This trend aligns with miners preparing for the 2024 halving event, which will halve their rewards.
The sell-off on December 11 also coincided with the liquidation of $87 million worth of long positions in the BTC derivatives market, compared to only $9.91 million in short positions. Massive liquidations of long positions trigger significant asset sales, potentially inducing stop-loss orders from other long traders, and amplifying selling pressure.
From a technical standpoint, Bitcoin’s decline aligns with its ongoing consolidation trend, forming a bullish pennant setup. Bullish pennants typically signal a continuation of an upward trend, with a potential breakout leading to a surge in price.
Despite the positive indicators, the market’s optimism is tempered by potential challenges. Factors such as a spot Bitcoin ETF rejection or delay could disrupt the upward trend. In such a scenario, Bitcoin risks breaking below its pennant support at around $42,000, potentially heading towards its 50-day exponential moving average at approximately $37,480.
Looking ahead, a decisive breakout could propel Bitcoin towards $50,000, with a significant event anticipated in January 2024 when the United States Securities and Exchange Commission is expected to decide on a spot Bitcoin exchange-traded fund. The recent formation of bullish rejection candlestick wicks on December 8 and 11 adds a positive sentiment, though caution is warranted given potential fundamental challenges.
Why is #crypto market down today?
📉Crypto Market cap sits at $1.54T, 4.4% drop in 24hrs.
1⃣ #Bitcoin saw a massive selling from Asian traders on December 11, caused nearly $197 million in longs and $8.23 million in shorts to be liquidated.
2⃣This drop also wiped $1.2 billion… pic.twitter.com/bjPJd9DNRP
— Coinpedia Markets (@MarketCoinpedia) December 11, 2023
