Bitcoin Dips: Why Is The Crypto Market Down Today?

The crypto market is down today due to Bitcoin’s price drop below $93,000, outflow of institutional funds in the ETF market, and over $500million in liquidations triggered by heightened volatility.

After a month-long rally with Bitcoin reaching $99,000, Solana hitting a new all-time high, and XRP registering its highest price in over three years, the crypto market saw notable liquidation today. The overall crypto market cap dropped by nearly 5%, as Bitcoin dipped below $93,000.

Bitcoin ETFs also saw its first net outflow in 10 days. This brief correction has caused some disappointments, as the crypto community was eagerly awaiting for BTC to reach the $100,000 milestone this week.

Here’s why the crypto market is down today.

Market correction explained

Bitcoin is currently trading at $92,540, marking a 6% drop over four days. This decline has coincided with reduced trading activity among US investors, according to market data. Meanwhile, Bitcoin exchange-traded funds (ETFs) experienced their first net outflow in 10 days, further indicating weakened sentiment.

Data from CoinGlass highlights a decline in the Coinbase Premium Index, which tracks the price difference of Bitcoin between Coinbase and Binance. Currently at -0.01, the metric points to selling pressure and lower demand from US-based institutional investors, who commonly use Coinbase.

Liquidation hits $500million as investors take profit

Monday’s early Asian trading hours saw a partial recovery, limiting 24-hour losses for major cryptocurrencies to under 2%. However, volatility triggered significant liquidations in crypto-tracked futures. Data from Coinglass shows over $500m was liquidated, split between $366m in long positions and $127 million in short positions.

Smaller altcoins and midcap futures faced unusually high liquidation volumes, exceeding those of Bitcoin and Ethereum. These figures suggest riskier trading behavior among investors, amplifying losses across the market.

Market considerations ahead of Christmas

The current downturn in the crypto market could set a cautious tone as the year-end holiday season approaches. Here’s what this might mean for the crypto market in the weeks leading up to Christmas:

1. Increased volatility

The significant liquidations, particularly in altcoins and midcap futures, suggest heightened risk-taking among traders. This volatility may persist as traders try to recover losses or capitalize on price swings. Market participants should prepare for potential price fluctuations in both major coins like Bitcoin and smaller assets.

2. Cautious sentiment among institutional investors

The drop in the Coinbase Premium Index indicates weaker demand from institutional and US-based investors. If this trend continues, it may dampen the market’s ability to recover quickly, as institutional participation plays a critical role in sustaining market momentum.

3. Psychological impact on retail investors

Bitcoin falling short of the $100,000 milestone could impact retail investor sentiment, particularly those who were banking on a strong year-end rally. The holiday season often sees lower trading volumes, which could exacerbate price swings due to reduced liquidity.

4. Opportunities for long-term buyers

Market corrections like this can create opportunities for long-term investors looking to enter at lower prices. As Bitcoin remains the dominant crypto asset, its dips are often seen as an entry point by those with a longer investment horizon.

5. Altcoin resilience will be tested

The liquidation of smaller altcoins highlights speculative activity, which could lead to sharper corrections in these assets. Traders will likely prioritize tokens with stronger fundamentals, leaving riskier altcoins vulnerable to further declines.

6. Uncertain macro factors

Broader economic factors, such as central bank policies, inflation concerns, and year-end portfolio rebalancing, could influence the crypto market. Investors will need to keep a close eye on macroeconomic trends that might spill over into crypto trading activity.

7. Potential for a Santa Claus rally

While the current sentiment leans bearish, a ‘Santa Claus rally’ — a phenomenon where markets see gains during the last week of December — could still materialize if confidence returns. Positive regulatory news, an uptick in institutional activity, or stronger-than-expected demand during the holidays could trigger renewed buying momentum.

In summary, the crypto market’s near-term trajectory will depend on how quickly confidence can be restored among both retail and institutional players. For now, investors should brace for a volatile December while looking for signs of stabilization heading into 2024.