The Catalyst for the Decline in Bitcoin Price May Not Be News-Driven: Expert Opinions!

• Expectations regarding the first U.S. exchange-traded funds (ETFs) directly investing in this cryptocurrency expanded the potential investor base.
• Coinglass data on December 11 shows that approximately $299 million worth of crypto trading positions, betting on higher prices, were liquidated.
• Global stocks and U.S. stock futures exhibited a volatile trend as the dollar index rose, reflecting a cautious sentiment among investors.

The critical price drop in Bitcoin has raised concerns in the market: What could be the catalyst for this decline?

What Could be the Catalyst Triggering the Bitcoin Price?

Bitcoin’s short but sharp drop towards $40,000 signals a potential leverage reduction phenomenon rather than a fundamental news catalyst, accompanied by a broader selling wave in the crypto market. On Monday, the largest cryptocurrency experienced a loss, dropping by up to 7.5% to $40,521, recovering some losses and trading 3.7% lower at $42,165 as of the time of writing.

The downward trend has also spread to smaller tokens such as Ethereum (ETH), XRP (XRP), Polkadot, and Cardano (ADA). The top 100 digital assets, as measured by an index, indicate the most substantial drop since November 22, decreasing by approximately 4%.

Bitcoin (BTC) has experienced a notable rise this year, driven by expectations of regulatory approval. Expectations for U.S. exchange-traded funds (ETFs) directly investing in this cryptocurrency have expanded the potential investor base.

Moreover, bets on a Federal Reserve interest rate cut in 2024 have further fueled the rally in Bitcoin and the overall virtual currency market. Richard Galvin, the founder of Digital Asset Capital Management in Sydney, emphasized the significant increase in market leverage and attributed the recent drop to a decrease in market leverage rather than a specific fundamental news catalyst.

Coinglass data on December 11 shows that approximately $299 million worth of crypto trading positions, betting on higher prices, were liquidated. This represents the highest figure since mid-September. Investors are cautious about aggressive bets on U.S. inflation data and a potential interest rate cut ahead of the last policy meeting of 2023.

Global stocks and U.S. stock futures exhibited a volatile trend as the dollar index rose, reflecting a cautious sentiment among investors. Tony Sycamore, a market analyst at IG Australia Pty, noted that traders typically take profits during this period and expected price declines to be supported by dip-buyers in the range of $37,500 to $40,000.

Despite recording an increase of over 150% since the beginning of the year, contributing to the overall recovery in digital asset prices after a significant drop in 2022, Bitcoin is still trading well below the pandemic-era record of nearly $69,000 two years ago.

Bitcoin’s Rise Shows Low Correlation with Traditional Assets

Bitcoin demonstrated resistance by reaching a high level of over 19 months during a period when global markets experienced a decline. The cryptocurrency gained more than 14% last month. However, global stocks and bonds have been struggling with losses since the beginning of the week.

This distinction emphasizes the current low correlation between cryptocurrencies and other traditional macro assets, as pointed out by Sean Farrell, the head of digital asset strategy at Fundstrat Global Advisors LLC.

The correlations of Bitcoin with stocks and gold during 2023 have decreased, along with specific factors in the crypto market that have led to a massive 152% increase in the value of the largest digital asset. One of the significant drivers behind these gains is the expectation of the U.S. approving its first spot Bitcoin exchange-traded funds, which may potentially increase demand for the token.