Bitcoin remains in a tight range, currently priced around $87,000, with fluctuations between $85,000 and $90,000. Despite its historical volatility, the cryptocurrency is down more than 7% year-to-date, reflecting a steep decline of approximately 30% since its all-time high achieved in October. This downturn signifies Bitcoin’s worst quarterly performance since the second quarter of 2022, which was marked by the collapses of TerraUSD and Three Arrows Capital.
During a week when traditional financial markets experienced a noticeable year-end rebound, Bitcoin not only failed to partake in the anticipated “Santa Claus rally” but also encountered a significant flash crash on the Binance exchange. On Wednesday evening, Bitcoin abruptly plummeted from about $87,600 to a stunning low of $24,100 in the BTC/USD1 trading pair, witnessing a staggering drop of over 70%. The price, however, rebounded nearly instantly to hover around $87,000 again, suggesting extreme price volatility.
This flash crash was isolated to the USD1 stablecoin issued by World Liberty Financial—associated with the Trump family—and did not affect other prominent trading pairs. Analysts attribute such dramatic price movements to insufficient liquidity in emerging or low-volume trading pairs. A lack of market makers to ensure dense bid-ask spreads leads to shallow order books, rendering them vulnerable to abrupt price changes triggered by large sell orders or automated trading actions. Cryptocurrency analysts have cautioned investors about the risks of trading in these illiquid environments.
As Bitcoin struggled, traditional financial markets portrayed a stark contrast. The S&P 500 Index recently reached record highs, benefiting from the typical rally observed around the holiday season. Technology stocks have also performed well, delivering solid returns for retail investors. Meanwhile, gold prices soared, reaching an all-time high of $4,525.18 per ounce, enjoying an annual gain surpassing 70%. This divergence from Bitcoin’s stagnant performance raises concerns about its status as “digital gold,” which has failed to draw defensive capital inflows in the current geopolitical climate.
Historical trends show that Bitcoin’s performance during the holiday season has variable outcomes. Notable highs were recorded during the Christmas-to-New Year periods in 2011 and 2016, with gains of 33% and 46%, respectively. Conversely, declines were noted in 2014 and 2021. Since 2011, Bitcoin has averaged a 7.9% increase during this period; its performance this year has fallen short of expectations.
Technical indicators also reveal deterioration, with Bitcoin trading below its significant 365-day moving average of approximately $102,000. This breach of a critical support level raises concerns about the potential for a deeper correction. An impending expiration of over $23 billion in options on December 26 may further complicate market dynamics and constrain directional bets.
The recent holiday season has seen diminished market activity and renewed outflows from Bitcoin and Ethereum exchange-traded funds (ETFs). On December 24, Bitcoin spot ETFs recorded a substantial net outflow of $175 million, while Ethereum ETFs saw a $57 million outflow. The most significant withdrawal was from Blackrock’s IBIT, which lost $91.37 million.
Market analysts suggest that seasonal behavior typically leads to a decline in trading volumes during major holidays, accompanied by a defensive shift in investment strategies. As the year draws to a close, traders are often liquidating cryptocurrencies in light of tax-related decisions, which may hinder any chance of a year-end rally.
With U.S. equities showing strength and gold continuing to shine, Bitcoin’s current stagnation underscores a lack of excitement around the asset, which traditionally thrives on speculative sentiment. As 2023 comes to a close, investors are left to ponder the cryptocurrency’s future path amidst broader market trends.
