The crypto market is experiencing a downturn, triggered by a sudden correction that impacted major cryptocurrencies like Bitcoin and Ethereum over the weekend.
This abrupt shift resulted in Bitcoin’s price plummeting by 6.5%, erasing nearly a week’s gains in just 20 minutes on December 10. The market’s opening this week continues to be bearish, as investors and money managers grapple with the reasons behind this sudden downturn.
Liquidations and Decreased Volumes: A Double Whammy
The crypto market’s decline was exacerbated by a spate of liquidations in the derivative market. Bullish traders were caught off-guard, leading to over $350.3 million in long positions being liquidated across the market in the past 24 hours, including $44.3 million in just the previous 12 hours.
Such massive liquidations, especially when they occur without adequate buying pressure to absorb the selling, tend to push market prices further down.
Compounding this situation is the noticeable decrease in trading volumes. After hitting a high of over $37.6 billion in total market trading volume on December 4, each subsequent day has seen a decline.
On December 10, the daily trading volume across the crypto market dwindled to just $19 billion. This reduction in volume coincides with growing concerns among analysts about Bitcoin’s dominance in the market.
Interestingly, a decrease in Bitcoin dominance is usually seen as a positive indicator for the broader crypto market, heralding a potential altseason. However, this anticipated surge in altcoin activity has yet to materialize.
Regulatory Pressures and Investor Sentiment
Adding to the market’s woes is the intensifying regulatory pressure, particularly from U.S. authorities. The crypto industry has a fraught relationship with regulators, often stemming from misunderstandings or distrust regarding the true utility of digital assets.
Recent actions by the U.S. Department of Justice, including enforcement actions and a settlement related to Binance and its CEO CZ, have only heightened these tensions.
The unsealing of Binance’s compliance obligations on December 8 underlined the DOJ’s stringent monitoring requirements, further unnerving market participants.
Risk assets like cryptocurrencies are highly sensitive to investor sentiment, and the specter of unfriendly regulation or even outright bans continues to loom large, impacting crypto prices on a regular basis.
As traders likely look to secure profits following a multi-month rally that saw prices reach yearly highs, the short-term outlook for the cryptocurrency market remains clouded with challenges.
In the end, the crypto market is navigating a complex web of economic and regulatory factors. The interplay of these elements will undoubtedly continue to shape the market’s trajectory in the foreseeable future, with traders and investors alike keeping a close eye on developments both within the crypto sphere and in the broader financial and regulatory landscape.
