The onset of December has ushered in a steep decline in bitcoin prices, deepening its bear market as the cryptocurrency fell dramatically to $85,461 on Monday. This drop marks a significant 32% decrease from its all-time high of around $126,200 reached in early October. Ethereum also shared in the downturn, with a 7% drop taking its value down to approximately $2,800.
Historically, bitcoin has typically showcased resilience in the final month of the year, often logging positive gains during December. Over the past 14 years, it ended the month in the green about half of the time, averaging an increase of 29.7%. However, market analysts, including Alex Kuptsikevich from FxPro, suggest that the current trends indicate a shift towards more persistent selling. Kuptsikevich notes that the beginning of the month has an emotional impact that may provoke further declines, painting a bearish picture for bitcoin based on recent market movements.
A combination of factors is contributing to this ongoing decline in bitcoin, leading analysts to predict the downturn may not be over:
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Risk-Off Mood: Bitcoin’s price trajectory has mirrored that of high-flying tech stocks amidst a broader risk-off sentiment in the market. Investors with leveraged positions have been forced to sell both stocks and cryptocurrencies to meet margin requirements, perpetuating a cycle of selling. Current sentiment indicators, such as CNN’s Fear and Greed index, reflect “Extreme Fear,” suggesting that bearish sentiment is prevailing and making it difficult for investors to shift toward a more bullish outlook.
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Concerns About the Yen Carry Trade: Comments from a Bank of Japan official hinted at potential interest rate hikes, stirring fears about the unwinding of the yen carry trade. This practice has seen investors borrowing funds at low interest rates in Japan to invest in higher-yielding U.S. markets. Historical instances of the Bank of Japan tightening its monetary policy have triggered significant market volatility, raising alarms about similar disruptions in the current environment.
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Weak Liquidity: Crypto markets are experiencing a reduction in liquidity as the year comes to a close. Following a major liquidation event in October, investor confidence has waned, resulting in significant outflows from exchange-traded funds (ETFs). Reports indicate that investors withdrew $3.5 billion from spot bitcoin funds in November alone. The diminishing market depth has made bitcoin more susceptible to volatility from substantial trades, further intensifying pressure across markets.
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Strategy Jitters: Strategy, a prominent bitcoin treasury company recognized as a large corporate buyer, has hinted at the possibility of liquidating some of its bitcoin holdings if its market valuation dips below a critical threshold. With its market value relative to its bitcoin holdings currently standing at around 1.2, a drop below this figure could trigger sales, according to CEO Phong Le. Given Strategy’s substantial position—holding approximately 650,000 bitcoins—any move by the company could lead to significant price declines. Analysts have suggested that if such selling were to occur, bitcoin’s price could tumble to as low as $60,000.
In sum, the convergence of these factors has resulted in a precarious outlook for bitcoin as the cryptocurrency heads further into December, a month that has historically brought stronger performance. Analysts are keeping a close watch on market dynamics as uncertainty looms over future price movements.
