Bitcoin Dips 7% to Near $40K; Pullback Will Be Short-Lived, Say Experts

Bitcoin

(BTC)
over
the
past
roughly
24
hours
has
suffered
its
steepest
daily
drawdown
in
almost
four
months
in
a
massive
leverage
wipe-out
as
traders
were
reminded
of
the
crypto’s
occasional
steep
bull
market
corrections.

Over
the
space
of
a
few
minutes
Sunday
evening,
BTC
plunged
to
near
$40,500
from
around
$43,800
in
what
could
be
termed
a
“flash
crash.”
Prices
quickly
recovered
to
$42,400,
but
then
started
to
slide
again
during
U.S.
afternoon
hours
to
as
low
as
$40,200,
a
level
it
broke
through
on
the
way
up
a
week
ago.

At
press
time,
the
largest
crypto
had
bounced
back
above
$41,000,
still
down
nearly
7%
over
the
past
24
hours,
but
on
track
to
be
the
worst
daily
drawdown
since

BTC’s
drop
below
$25,000
on
August
17.

Ether

(ETH),
the
second
largest
cryptocurrency,
also
tumbled
over
7%
in
the
same
period
to
below
$2,200.

Most
of
the
rest
of
the
cryptocurrencies
also
suffered
large
declines,
with
Ripple-linked

(XRP),
dogecoin

(DOGE),
native
tokens
of
Chainlink

(LINK)
and
Cardano

(ADA)
nursing
8%
to
12%
losses
during
the
day.

Some
altcoins
defied
the
trend,
with
tokens
of
Avalanche

(AVAX),
Injective

(INJ)
and
Optimism

(OP)
being
among
the
very
few
gainers.

The
CoinDesk
Market
Index

(CMI),
which
tracks
a
market
capitalization-weighted
basket
of
almost
200
digital
assets,
was
also
down
over
7%,
underscoring
heavy
declines
across
the
board.

Sharp
drawdowns
have
been
part
of
every
previous
bitcoin
bull
cycle
but

have
been
elusive
in
the
past
weeks
as
BTC
rose
nearly
without
pause
from
$27,000
to
nearly
$45,000
since
Oct.
1.

The
current
correction
shouldn’t
have
come
as
a
surprise
and
was
due
to
happen
at
some
point,
bitcoin-focused
market
analyst
Will
Clemente
said.
These
pullbacks
are
necessary
to
unwind
excessive
leverage
for
a
more
sustainable
price
action,
he
added.

“BTC
just
nearly
doubled
in
2
months
with
no
pullbacks,
a
correction
is
not
that
surprising,”
Clemente

posted.
“Corrections
shake
out
‘weak
hands’
and
leverage,
allowing
for
a
stronger
foundation
for
eventual
moves
higher.”

The
decline
wiped
out
over
$520
million
in
leveraged
trading
positions
on
the
crypto
derivatives
market,
predominantly
longs
betting
on
rising
prices,

CoinGlass
data
shows.
It
was
the
largest
level
of
daily
liquidations
in
at
least
three
months,
according
to
the
firm.

Liquidations
are
forceful
closure
of
a
leveraged
trading
position
usually
because
the
trader’s
margin
to
cover
the
open
position
has
run
out.
Large
liquidation
events
often
mark
a
local
top
or
bottom
in
prices.

Joel
Kruger,
market
strategist
at
LMAX
Group,
noted
that
the
cascading
liquidations
of
leveraged
longs
intensified
the
current
sell-off
as
traders
faced
margin
calls.
Additionally,
a
stronger
U.S.
dollar
might
have
added
to
the
crypto
market
weakness.

He
said
the
pullback
helped
cryptocurrencies
come
down
from
overbought
levels,
and
asset
prices
could
continue
to
rally
to
new
highs.

“We
suspect
these
dips
in
bitcoin
and
ether
will
be
eaten
up
rather
quickly,
in
favor
of
higher
lows
and
bullish
continuations
to
new
yearly
highs,”
Kruger
said
in
an
emailed
note.
“The
outlook
for
crypto
assets
into
the
year-end
remains
bright.”