Will there be a "survivor"?
Christmas is one of the major holidays in the world. The crypto market always undergoes adjustments of varying degrees around Christmas. This year’s adjustment is particularly strong. Let’s discuss in depth the key factors that led to the sharp drop in the crypto market during Christmas:
1. Holiday Effect:
During the Chinese New Year in the West, many investors and traders will take a vacation, resulting in a reduction in the overall trading volume of the market. The liquidity of the crypto market is still relatively low compared to markets such as gold. When there are fewer market participants, market liquidity will drop significantly. When large trades occur, prices may fluctuate significantly due to lack of adequate hedging or market sentiment;
2. Year-end profit settlement:
Around Christmas is usually the last few weeks of the year, when many investors settle profits before year-end, especially after experiencing a three-month rise from September to November in the cryptocurrency market. Investors may choose to sell some assets before the holidays to realize profits, and this collective selling behavior can intensify market declines.
3. “Tax Loss Harvesting” behavior:
Some investors may choose to optimize taxes at year-end by selling off some loss-making assets to adjust the tax burden on other assets, a practice known as “Tax Loss Harvesting.” This can lead to additional selling pressure in the market around year-end and Christmas.
4. Year-end economic data and market adjustments:
Year-end is a peak period for economic data and annual report releases, and many countries and regions will publish economic growth data. If this economic data falls short of expectations, it may lead to investor panic over concerns about the global economic outlook, primarily affecting the sentiment in the cryptocurrency market. For example, if the traditional financial market performs poorly, the cryptocurrency market may be impacted by a chain reaction. Especially at this stage, there are serious concerns about the bubble behavior in both the cryptocurrency market and U.S. stocks.
5. “Whale” sell-offs:
In the cryptocurrency market, a few “whales” hold substantial amounts of currencies, and these “large holders” may adjust funds, reallocate assets, or realize profits around Christmas. If these whales sell off large amounts of assets during the low liquidity holiday period, it could lead to significant market price fluctuations, even crashes. Additionally, some investors may liquidate their positions during the holidays, especially after experiencing prolonged increases or profits; this behavior can exacerbate the downward trend in the market.
6. Short-term technical adjustments:
The cryptocurrency market itself has severe technical trading factors, and many short-term trading strategies are influenced by technical signals. Conversely, some short-term investors may sell based on technical signals or an excessively overbought condition, leading to price declines.
7. Holidays for exchanges and liquidity founders:
Some exchanges or liquidity peaks may reduce operations during holidays, leading to a significant decrease in trading volume on the platform, affecting the normal trading functions of the market. Additionally, certain exchanges may conduct system updates or maintenance during holidays, which could also impact market liquidity and trading conditions. Meanwhile, during holidays, the cross-border capital flow of global financial institutions may sharply slow down, which could exacerbate market price fluctuations, especially in the globally active cryptocurrency market.
Summary: In the context of a significant rise over the three months from September to November, combined with reduced market participation, declining trading volume, changes in investor psychology, and technical adjustments during the holiday period, this year’s Christmas saw a rapid retraction within a very short period, intensifying the space and force of the decline. Aside from Bitcoin, which remains near its peak position, Ethereum has fallen back to around the 3000-3100 point mark, the dividing line between bulls and bears. Some quality altcoins have halved, returning to their starting points, while some inferior altcoins have hit new lows! After the holiday, historically, the cryptocurrency market tends to gradually warm up. A steep decline is not frightening; what’s frightening is a continuous downward trend. The analogy of boiling a frog in warm water is just a chronic death! Friends who still have ammunition, please cherish it; a quick rebound after a steep decline is not healthy. Adjustments and bottoming after a steep decline are beneficial for a healthy rise in the later market! Wait for the market to stabilize and bottom out before trying to catch the bottom.