Will It Bounce Back or Keep Falling?

The cryptocurrency market has faced a notable downturn, losing 2.10% in value over the past 24 hours. The market capitalization now stands at $3.17 trillion, marking its lowest point in five days. This crypto market crash comes as Bitcoin and other major assets witness heavy selling pressure amid global developments, including an easing of tensions in the Middle East.

U.S. President Joe Biden announced that Lebanon and Israel have agreed to a U.S.-mediated proposal to end the conflict involving Hezbollah.

Meanwhile, uncertainties in traditional markets persist, driven by tariff threats from former U.S. President Donald Trump. Concurrently, the cryptocurrency Fear and Greed Index has fallen to 79, its lowest in two weeks but still within the “extreme greed” range.

Bitcoin’s Overbought Conditions Trigger Profit-Taking

Bitcoin price has been at the center of this crypto market crash, falling by over 8% from its November 22 peak of $99,830 to a current price of $91,377. Data from CryptoQuant shows that the Profit and Loss (P/L) ratio for Bitcoin has reached levels comparable to its March 2024 peak of $73,400, indicating significant profit-taking by long-term holders.

Historically, cryptos like Bitcoin are considered by some investors as a hedge against geopolitical instability. However, Biden’s announcement of progress in the Lebanon-Israel conflict has decreased safe-haven demand.

Source: CryptoQuant

Concurrently, recent analysis revealed that long-term holders moved $60 billion worth of Bitcoin supply in the last 30 days, with November marking the heaviest profit-taking of this market cycle. This behavior, often observed near market tops, has increased selling pressure as retail investors absorb supply during bullish trends.

Additionally, a bearish divergence between Bitcoin’s price and the Relative Strength Index (RSI) on the daily chart signaled an overbought market, further preventing the asset from breaking through the $100,000 level.

Futures Market Reflects Rising Volatility and Downside Risks

The crypto market crash has also extended into Bitcoin futures markets, where overleveraged positions have fueled volatility. Nick Forster, founder of Derive, noted that traders are shifting toward protective strategies, as reflected by a 30% drop in the call-put skew index for Bitcoin options expiring on December 27.

“Traders are hedging against potential price declines,” Forster explained. Options data suggests a 68% chance of Bitcoin moving to $81,493 or climbing to $115,579 by late December. There is also a smaller 5% probability of extreme moves, such as a drop to $68,429 or a surge to $137,645. The impending expiration of $11.8 billion in Bitcoin options on December 27 could trigger significant price swings.

While volatility remains high, Forster noted that the seven-day and 30-day implied volatility levels for Bitcoin have remained stable at 63% and 55%, respectively. Market watchers are closely monitoring the futures market as it remains a key driver of short-term price movements.

Mixed Performance for Altcoins During the Crash

Altcoins have shown a mixed response to the ongoing crypto market crash. On the losing side, The Sandbox (SAND) dropped 12.03%, while Stellar (XLM) and Decentraland (MANA) fell by 10.07% and 8.24%, respectively. Other notable decliners included Arbitrum (ARB), Maker (MKR), and Ethereum Classic (ETC), all experiencing losses exceeding 5%.

On the other hand, some altcoins managed to gain despite the broader market sell-off. Fantom (FTM) led the gains with a 13.86% increase, followed by Sei (SEI) and Injective (INJ), which rose by 13.55% and 13.05%, respectively.

Algorand (ALGO) also saw a 10.59% rise, alongside other gainers like Sui (SUI) and Theta Network (THETA). Analysts suggest that while Bitcoin consolidates, capital may flow into select altcoins.

Will the Crypto Market Crash Stabilize or Continue Falling?

The crypto market crash has raised questions about whether the market will recover or face further declines. Michael van de Poppe, founder of MN Trading, pointed out that the market shows signs of overheating, including high volatility and a surge in margin positions.

He suggested, “The chances of a prolonged sideways phase for Bitcoin are high, although some altcoins may continue to perform well.”

Despite the short-term uncertainty, institutional investors like MicroStrategy remain bullish. Founder Michael Saylor recently announced the company’s purchase of 55,500 BTC at an average price of $97,862, bringing its total holdings to 386,700 BTC. This signals ongoing confidence in Bitcoin’s long-term potential, even as the market faces challenges.

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Kelvin Munene Murithi

Kelvin is a distinguished writer with expertise in crypto and finance, holding a Bachelor’s degree in Actuarial Science. Known for his incisive analysis and insightful content, he possesses a strong command of English and excels in conducting thorough research and delivering timely cryptocurrency market updates.

Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.