In the past two days, the crypto market has experienced a significant setback with a flash crash that led to a nearly 8.7% dip in the global crypto market cap to $3.52 trillion. While Bitcoin fared relatively better, losing just over 2% to trade at $95,800 as of Dec. 10, most altcoins took a hard hit. Ethereum dropped around 6% to $3,580, XRP plunged 12.5% to $2.09, and Solana declined by 6% to $210. Meme coins, especially in the Pump.fun ecosystem on Solana, saw even steeper losses, with some declining by nearly 25%. Bitcoin sidechains and gaming tokens also suffered sharp drops.
The crash unfolded in stages due to multiple factors. Aggressive selling on Coinbase about an hour before the major crash initiated the sell-off. This pushed Bitcoin’s price into a zone that triggered a liquidation cascade as overleveraged positions were forcibly closed when prices dropped below certain thresholds, creating a domino effect.
The Funding Fee, which reflects sentiment in perpetual futures contracts, showed an overly bullish market before the crash. When the market turned, long positions worth $1.46 billion were liquidated compared to only $174 million in short positions in just 24 hours, highlighting the market’s imbalance.
Poor liquidity conditions, especially in smaller altcoins like XRP, exacerbated the situation. A few large sell orders could have a significant impact on their prices. Additionally, market makers’ hedging actions during the sell-off amplified price movements across exchanges and triggered more liquidations.
Despite the crash, the macroeconomic backdrop remains relevant. The U.S. dollar’s depreciation has positioned Bitcoin, like gold, as a hedge against fiat currency debasement. Institutional adoption is growing, with the spot Bitcoin ETF reaching $50 billion in assets under management in just 228 days. The CME FedWatch Tool indicates an 86% probability of a 25 basis points rate cut in the upcoming Federal Reserve meeting, which could boost liquidity and further support crypto assets.
For Bitcoin, opinions vary. Some analysts, like Doctor Profit, believe its current sideways consolidation is temporary and expect it to break out towards $125,000 – $135,000 based on its cyclical price movements. However, others like Nik suggest a possible multi-week correction if it fails to maintain key levels, warning that a rejection below $99,000 could lead to a prolonged cooling-off period.
Regarding altcoins, there’s cautious optimism. Michaël van de Poppe and Kaizen think altcoins could be on the verge of breaking out of the longest bear market, drawing parallels to the situation in December 2020. With expectations of a weakening U.S. dollar and increased liquidity, they anticipate a significant rally.
However, given the crypto market’s volatility, caution is advised, and investors should only invest what they can afford to lose. It’s important to note that this article is for educational purposes and does not constitute investment advice.
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