Bitcoin traded near $42,000 after a turbulent period that led to a nearly 8% decline for the largest digital asset, sparking expectations of more volatility as the end of the year approaches.
The currency recorded a decline from Saturday to Monday, which is the worst three-day performance since mid-August, according to data compiled by Bloomberg. A pullback below $45,000 sent the broader cryptocurrency markets lower as well.
Some observers attributed the decline to speculators reducing their long positions ahead of a Federal Reserve meeting that could test aggressive bets on interest rate cuts in 2024. But most analysts struggled to find a specific reason for the decline, describing the decline as expected given Bitcoin's 152% rise on Year to date basis.
The cryptocurrency has rebounded this year after a setback in 2022, with investors becoming increasingly confident that regulators will soon allow the first spot Bitcoin exchange-traded funds in the United States, which could herald increased demand for the virtual currency.
Take profits
Caroline Mauron, co-founder of digital asset derivatives liquidity provider Orbit Markets, said: “Cryptocurrencies have finally seen some profit taking after a stunning rise over the past few weeks.” She added: “We expect more volatility for cryptocurrencies in the period leading up to the approval of exchange-traded funds that will be implemented.” Invest directly in Bitcoin in early January. These fluctuations may increase during the holiday period.
The cryptocurrency industry is awaiting the results of applications from BlackRock and others to begin launching Bitcoin ETFs in the United States. Bloomberg Intelligence expects a group of funds to receive SEC approval by next month.
Another boost to trader sentiment is the so-called Bitcoin split scheduled for 2024, which will cut in half the cryptocurrencies that miners receive as a reward for their work. The quadrennial event is part of the process of setting the maximum Bitcoin supply at 21 million coins, and the currency has set record numbers after the last three splits.
Pessimistic scenarios
Yesterday, Monday, the optimistic scenarios declined. Coinglass data shows that about $455 million worth of cryptocurrency trading positions betting on rising prices were liquidated on December 11, the highest level since at least mid-September.
“There have been a number of market signals where we can see that Bitcoin is facing general resistance from a technical trading perspective,” said Greg Moritz, co-founder of cryptocurrency hedge fund AltTab Capital. He added: I do not think this indicates any fundamental change. If anything, it's a buying opportunity in our view.
Bitcoin rose nearly 1% to $41,737 as of 9:07 a.m. in Singapore on Tuesday. Smaller tokens such as BNP and Avalanche also rose, and an index tracking the top 100 cryptocurrencies recorded modest progress.
