Bitcoin a victim of traditional “risk-off” gamblers?

Along with the crypto market in general, the recent drop in Bitcoin prices reminds many of the May 19th crash. With BTC shedding 25% in value in just a few hours, the market appears to be falling back to its late September levels – while BTC was trading around $ 49,000 at press time, it briefly touched $ 42,000.

The halving above wiped out a number of addresses, resulting in billions in the liquidation of the entire market. So the question now is is Bitcoin’s macro bullish outlook intact?

Some big investors take massive profits?

The main difference between any previous December 3rd correction is that it is down 22%. This is the largest correction since May 19th.

It is important to understand that this time around, it is not manipulative like previous fixes, but rather that large investors may take profits. The downside came over the weekend when the traditional market closed.

The drastic turnaround and low liquidity conditions resulted in higher sales volumes.

But why did it happen so suddenly?

The bearish sentiment can be attributed to traditional stocks. Last week the traditional market entered a correction phase. The advent of the Omicron variant is shaking the long-term economic recovery after Covid-19 and leading to a serious risk-off situation.

A risk-free market occurs when investors pull capital out of a volatile asset and into a safer option like gold to avoid short-term volatility.

Source: Glassnode

Accordingly, it also helps remove leverage in the Bitcoin futures market. Open interest declined $ 5.4 billion from $ 22 billion to $ 16.6 billion – a decrease of 24.5%.

So what’s the main reason for the risk-off story?

In a recent announcement, the Federal Reserve’s Open Markets Committee (FOMC) indicated that policymakers are putting forward plans to reduce their more stringent asset purchase program. The US unemployment rate fell sharply last month and Federal Reserve Chairman Jerome Powell urged policymakers to consider scaling back bond purchases at their upcoming December 14-15 meeting.

In addition, the reduction in bond purchases will allow the FOMC to raise interest rates to allay inflation concerns.

Thomas Costerg, Economist at Picter Wealth Management, said:

“The likelihood of contraction increases. The Fed cannot ignore the decline in the unemployment rate to just 4.2%. ”

Overdue dip

On the daily chart, the Bitcoin price has been moving within a falling wedge structure since the November 16 crash. Looking at the larger structure over the past month, one could argue that the recent drop to $ 42,000 was overdue.

A look at the weekly chart shows that price broke the MA50 trendline after the 4/12 collapse.

The source: TradingShot

During previous large corrections, the price broke below this level in May and then again in late June, but BTC has always managed to hold that level.

In fact, this level represents support for the + 100% rally from July to November. So as long as the week closes above or at least around the MA50 on the weekly chart, Bitcoin will likely establish support for a new rally.

Interestingly, a fractal (repeating pattern) RSI also appears to be active here. Looking at the graph above, the RSI structure that appears from mid-2019 to early 2020 is similar to that seen from early 2021 to the time of writing. The main catalyst in both cases was the sell-off over COVID concerns.

However, this crash was caused by a combination of factors such as panic among private investors, collapsing technology markets, over-indebted crypto markets, high open interest, positive financing rate …

What’s next?

While the price has recovered a bit for now, the possibility of a further drop to $ 40,000 or below cannot be ruled out.

However, the two most important BTC utility indicators continue to rise – a good sign. BTC in circulation and daily active addresses hit a 6-month high at the time of going to press. In fact, they are still continuing their upward trend.

The source: Sanbase

Additionally, leverage is estimated to have fallen 22% in just one day, most recently in September when the price fell 24% to hit $ 40,000.

In the event that a similar rally follows and the price of BTC has a similar structure, the next minimum target of $ 75,000 is expected by the end of January 2022.

The source: KryptoQuant

At the time of writing, what is most encouraging is that BTC price is rebounding from lows, with market dynamics being very different from the previous cycle.

While volatility remains high, the market appears to have moved from FOMO-induced highs and sell-offs to more mature and sustainable growth, while leverage has been reduced. However, with the price structure still trending downward, despite the recovery moves, it is best to be cautious.

In addition, spot buyers still hold. Therefore, Bitcoin could reverse and continue to rise after the FOMC meeting officially considered restricting the asset purchase program.

However, this is still an uncertain time for Bitcoin and the crypto market. The FOMC meeting is still more than a week away, which shows that BTC has yet to hold its position in the market.

Should the traditional market continue to fall, it is likely that Bitcoin will follow a similar path in the future.

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