Why Crypto Market’s Dip Isn’t the End of the Bull Market?

Are recent liquidations and falling prices setting the stage for a longer crypto winter, or could this be a respite before another bull run?

Crypto market stumbles as year-end approaches

As the year draws to a close, the crypto market appears to be stalling after a long uptrend; The global market value lost more than 6%, settling at around $3.47 trillion as of December 20.

Bitcoin (BTC) has fallen below the critical $100,000 level and is trading at $96,680 as of this writing; a decrease of approximately 3.5% in the last 24 hours.

BTC 6-month price chart | Source: crypto.news

Ethereum (ETH), the second-largest cryptocurrency by market cap, suffered an even sharper decline, losing 6% in the same period and remaining at $3,400 for a weekly loss of 15%.

The decline did not affect the rest of the market. While the top 100 altcoins recorded losses ranging from 10% to 20%, meme coins, known for their wild price swings, were hit the hardest, with an average industry-wide decline of 12%.

For example, Dogecoin (DOGE) dropped over 12% to $0.31, and Shiba Inu (SHIB) dropped nearly 10% to $0.0000211. Other popular meme tokens such as Floki (FLOKI), Bonk (BONK), and Pepe (PEPE) followed suit, increasing their weekly losses to between 35% and 40%.

Adding to the chaos in the futures market, staggering liquidation figures also emerged. More than 374,000 traders were liquidated in the last 24 hours, totaling $1.37 billion, according to Coinglass.

$1.13 billion of these liquidations came from long positions; This is a clear sign that overly optimistic bets have gone wrong. Bitcoin alone caused $320 million in liquidations, mostly from long positions, while Ethereum had $308 million wiped out, with $263 million tied up in long positions.

24-hour liquidation heat map | Source: CoinGlass

A closer look at open interest (the total value of outstanding futures contracts) shows that the market may be entering a bearish phase.

Bitcoin’s open interest has increased steadily over the past few months, rising from $32 billion in early October to $68 billion on December 18. However, this fell to $62 billion as of December 20, coinciding with the sharp price drop.

BTC 3-month open position chart | Source: CoinGlass

Typically, when both open interest and prices fall, it signals a bearish trend as it reflects investors closing positions and reducing risk during market uncertainty.

Fed’s interest rate moves increased volatility

The sharp correction in the crypto market can largely be attributed to the US Federal Reserve’s recent interest rate decision and its accompanying comments.

The Fed announced its third rate cut of the year on December 18, dropping the federal funds rate from 0.25% to 4.5%.

While the move was widely expected and brought the year’s cumulative decline to 1%, the central bank’s messaging carried a more cautious tone.

Fed officials announced that only two additional cuts are planned for 2025, and subsequent adjustments will depend on inflation trends and general economic conditions.

The Fed’s measured approach reflects its ongoing struggle to control inflation, which is expected to remain above its 2% target until at least 2026.

The announcement sent shockwaves through financial markets, especially risk-sensitive assets such as crypto and stocks. US stock markets reacted sharply; The Dow Jones and Nasdaq 100 are down more than 2%.

At the same time, bond yields rose as investors sought the safety of the treasury. The 10-year yield rose to 4.557%, while the 30-year yield reached 4.7%.

Meanwhile, the US dollar index rose to a two-year high, further tightening financial conditions and increasing pressure on global markets, including cryptocurrency.

Bitcoin’s rise above $100,000 earlier this month was an undeniable milestone, and Ethereum’s rise above $3,500 has similarly sparked widespread optimism.

However, such euphoric sentiments cause investors to lock in profits, especially during times when markets show sharp corrections after prolonged rallies as risk appetite wanes and investors adjust their positions.

This time was no different. It has faced a double whammy of declining demand for cryptocurrencies and panic-induced selloffs as investors turn to safer options like Treasuries and cash.

Sellings skyrocketed due to forced unwinding of leveraged positions in futures markets, triggering widespread liquidations. The cascading effect of these events sent prices falling sharply, dragging the crypto market firmly into correction territory.

Traditional market volatility drives cryptocurrency lower

Recent turmoil in traditional financial markets is extending to the crypto space; Bitcoin is feeling the brunt of macroeconomic pressures that are leaving investors in a difficult position.

A closer look at the situation through the lens of Kobeissi Letter’s analysis sheds light on how rising volatility, changing market correlations and broader macroeconomic conditions are shaping the current narrative for Bitcoin and crypto assets.

The Volatility Index (VIX), often referred to as the “fear gauge” for traditional markets, is up nearly 100% this week, indicating increased uncertainty.

Today history will be made:

While the Nasdaq is down over -6% from its high in just 5 days, there is a HUGE amount of options expiring today.

In fact, a record $6.6 TRILLION worth of options are expiring based on notional value.

What exactly does this mean?

(one thread)

— Kobeissi Letter (@KobeissiLetter) December 20, 2024

This rise coincides with the Fed’s hawkish stance, which predicts a slower rate cut when it lowers interest rates on December 18; Higher long-term interest rates are shaking up risk assets, including Bitcoin, as safe-haven investments such as the U.S. Treasury bonds are becoming increasingly attractive.

The 10-year Treasury yield has now risen to 4.5% amid fears of a rise toward the 5% level, the threshold that previously triggered corrections in both stocks and crypto markets.

Digging deeper, Bitcoin’s performance can often be understood by relating it to its correlation with traditional financial indices.

Earlier this year, Bitcoin shared a strong positive correlation with the Nasdaq and S&P 500, rising to 0.9 and 0.86 respectively in June. This meant that Bitcoin largely moved in tandem with technology stocks and benefited from the same risk sentiment.

1-year correlation chart of BTC with Nasdaq and S&P 500 | Source: Block

But in mid-July, this correlation returned to -0.87 and -0.86, signaling a rare divergence in which Bitcoin briefly served as a hedge during stock market weakness.

More recently, as of December 19, these correlations had fallen to 0.57 for the Nasdaq and 0.38 for the S&P 500. While Bitcoin is still reacting to macroeconomic changes, price movements have begun to reflect unique pressures such as spot ETF inflows and outflows. and other crypto-related developments in the US

In the short term, Bitcoin faces a number of obstacles. As rising Treasury yields direct institutional capital into safer assets, stocks are struggling to find support amid rising volatility.

However, the softening correlation between Bitcoin and traditional indices suggests that the crypto market is not entirely dependent on broader market trends.

If this divergence continues, it could allow Bitcoin to carve out a more independent narrative, but only if it can withstand the current macroeconomic storm.

The expert thinks: Is this the bull market breathing?

Experts are divided on Bitcoin’s short-term trajectory, but there is a common sentiment: While this correction is troubling, it may not signal the end of the bull market.

Lark Davis uses historical parallels to provide perspective. “In December 2020, Bitcoin fell 12% after a major rally, but rose 136% over the next 23 days.” He notes that the current 13% decline follows a similarly strong fourth quarter performance.

If you’re worried this is the end of the bull market, know this:

In December 2020, $BTC It fell 12% after witnessing a 77% rise in October-November.

It then moved from $17,000 to $41,000 (a 136% move) over the next 23 days.

Something similar is happening right now… pic.twitter.com/lFPSy3JjTt

— Lark Davis (@TheCryptoLark) December 20, 2024

While Davis warns that another 10-15% correction is possible, he emphasizes that there is “plenty of fuel left in the tank” for Bitcoin and the broader crypto market.

Adding to this perspective, Rekt Capital says corrections are both common and necessary during price discovery stages. “Price discovery corrections typically last several weeks, and there are often up to four corrections in a bull market cycle.”

#BTC

Price Discovery Corrections usually occur between Week 6 and Week 8

They tend to last several weeks

There also tends to be a maximum of 4 Price Discovery Corrections before the Bull Market ends.

This is the first Price Discovery Correction in this cycle

Which means it’s a…

— Rekt Capital (@rektcapital) December 20, 2024

This is the first such correction in the current cycle, making this “an optimal reaccumulation opportunity with a high probability of prices turning upwards,” according to Rekt Capital.

Michaël van de Poppe focuses on the potential for consolidation from a slightly different perspective. He notes that Bitcoin’s fall below $102,000 triggered a sharp decline in altcoins, but such volatility is expected in a high-growth market.

period of calm for #Bitcoin.

It fell below $102K and resulted in a sudden crash #Altcoins.

These are opportunities and these declines will continue to occur.

But from now on, I expect Bitcoin to consolidate and altcoins to make their next move higher. pic.twitter.com/x7sEP1mEn4

— Michaël van de Poppe (@CryptoMichNL) December 20, 2024

“These are opportunities, and these declines will continue to happen,” he says. From here, he expects Bitcoin to consolidate while altcoins potentially see another rise.

Beyond these short-term considerations, macro developments signal longer-term opportunities. Bitcoin Magazine reports that Groupe BPCE, a major French bank with 35 million users and $1.5 trillion in assets, has received approval to launch Bitcoin and crypto investment services.

NOW: $1.5 trillion Groupe BPCE subsidiary gets approval for incorporation #Bitcoin and offers crypto investment services to its 35 million users.

Groupe BPCE is one of the largest banks in France 🇫🇷 pic.twitter.com/3hr7mTv7DF

— Bitcoin Magazine (@BitcoinMagazine) December 20, 2024

Bitcoin’s steady integration into mainstream financial ecosystems, combined with its increasing accessibility for retail investors, could provide a counterweight to current market fears.

But risks remain. High Treasury yields, macroeconomic uncertainty and increased volatility in traditional markets continue to pose challenges.

Traders and investors should be careful as more volatility could lead to further declines. Trade wisely and never invest more than you can afford to lose.

Disclosure: This article does not constitute investment advice. The content and materials on this page are for educational purposes only.