In the early morning of December 10, Bitcoin led the crypto market to plunge, with more than 570,000 people liquidating their positions overnight and $1.72 billion liquidated within 24 hours. This was the second-highest number of liquidations in history, and many people withdrew from the crypto market as a result.
The crypto market has always been known for its high volatility and uncertainty. Historically, moments of plunge like this one are not uncommon. In the first three rounds of the halving bull market, Bitcoin experienced more than a dozen sharp drops: in the first round of the halving bull market, the daily decline exceeded 15% 25 times; in the second round of the halving bull market, the daily decline exceeded 15%. There were 17 times; in the third round of halving bull market, the number of daily declines exceeded 15% eight times, and the number of daily declines exceeding 10% doubled.
In fact, senior investors in the crypto market know that in each round of halving bull market, there is a big drop after a big rise. Although there will be a new high after the big drop, the short-term sharp drop in the market will also make many people feel painful, and even the tragic "incident" of "the price remains unchanged after a drop and an increase, but the coin is gone" will occur. So, why do bull markets often crash? How can we foresee the crash and prepare in advance? This article will give you an in-depth interpretation of these issues and cite some common market data indicators to help you better predict the crash.
How did the market makers clean up the market in this round of sharp decline? Why did the bull market crash so much?
This bull market is a combination of factors such as Bitcoin halving, the Fed's interest rate cuts and the approval of Bitcoin spot ETFs. The duration and intensity of this bull market are higher than the previous three halvings. Correspondingly, the plunge will be stronger, and the means of killing by the banker will be more confusing. Because everyone has a higher degree of consensus now, the effect of simply killing and washing the market is not good, so a combination of sets must be used to complete the washing.
At present, judging from this decline, the dealer uses a three-step combination to clean up the market:
In the first step, Bitcoin falsely broke through the psychological expectations of the market - that is, it broke through $100,000 to deceive a wave of guns and raised the expectation of rising, and then quickly inserted a needle from $104,000 directly to $90,790, a sharp drop of 13,210 points, a drop of 13%. The reason for the Bitcoin plunge was to clean up various types of leverage. This decline directly caused a liquidation of $1.098 billion in the entire network, of which long orders were liquidated for $816 million. At the same time as Bitcoin plunged and inserted a needle, the altcoin did not fall too much, which gave people an illusion: Bitcoin's insertion was a leverage explosion and altcoins would continue to rise.
Then the second step of the wash came: in the early morning of the 10th, Bitcoin began to fall continuously, but it didn’t fall much, but the altcoins were in a bloodbath. Whether it was ETH, XRP, ADA, SOL and other traditional mainstream coins or ORDI, OP, WLD and other popular new coins, they all experienced a short-term plunge, falling by 15% or even 20% in 30 minutes. The overall decline was basically more than 30%, or even directly cut in half. This was the most lethal blow, which directly caused 570,000 people to lose all their money.
The third step, after the plunge, there was a pin-point rebound, and then it attracted retail investors to buy the dip. However, the market was dawdling until the early morning of the 11th, when it began to really step down for the second time, almost stepping down to a new low, washing out a large number of people who bought the dip, and making many people who originally wanted to buy the dip completely wait and see. Then, when the market was quickly pulled up later while retail investors were not paying attention, it would be more attractive for retail investors to chase the rise due to FOMO.
This is the analysis of the whole process of this crash. It is hard to say whether there will be other actions in the future, but from the perspective of the fourth round of halving bull market, there will definitely be many such crashes in the future. Just like a saying that many senior investors have heard: bull markets have more crashes, and bear markets have more surges. Specifically for the Bitcoin halving bull market, the "crash" phenomenon can be said to be coexisting with the bull market.
Why do bull markets often crash? There are many answers to this question, and the most essential one is that the speed of new capital inflows into the market cannot keep up with the speed of the market's rise. At this time, the bullish force is unsustainable, and there are many profit-taking orders in the market. The sentiment of profit-taking is getting stronger, and the market direction gradually reverses, which triggers panic-like flight, and the crash comes. Rapid callbacks usually occur when the price reaches a key psychological level, such as the previous high or integer price, just like this time when Bitcoin broke through the psychological level of 100,000, and the crash followed.
Another reason is the liquidation of the leveraged market. In a bull market, investors tend to use high leverage to trade in pursuit of higher returns. However, sudden fluctuations in market prices will trigger a large number of forced liquidations, exacerbating the price drop. This results in a large amount of liquidation data often accompanying a plunge, and this plunge caused a liquidation of nearly $3 billion.
In a bull market, market sentiment can easily shift from extreme optimism to panic. Once negative news appears in the market (such as regulatory policies or black swan events), retail investors' confidence may collapse rapidly, leading to a stampede-like decline.
These factors will be used by the main funds to carry out market wash operations, that is, by selling large amounts of Bitcoin to create a price drop, thereby triggering market panic, forcing retail investors to sell Bitcoin, and then re-absorbing funds at a low level to prepare for the next round of increases.
How to foresee a crash?
Now that we understand why bull markets are often followed by crashes, how can we foresee a crash and prepare in advance?
First of all, we need to fully understand the basic logic of each round of rise in the bull market: each round of rise is triggered by more people and more new funds entering the market. When there are no more "newcomers" entering the market, and the "old hands" in the market have no new funds, and most of them are in a "full position" state, it may be the stage top, and a crash is about to come.
Then, based on the understanding of this logic, you can reasonably refer to some data indicators to make your judgment more accurate, such as:
First, we can conduct data analysis and market monitoring on third-party data platforms such as Glassnode, CryptoQuant, and Coinank, and we can always check the changes in the following data indicators:
1. RHODL Ratio: When the indicator enters the red band it means the market is approaching the top of the cycle.
2. AHR999x top escape indicator: below 0.45, it is the bull market top or the stage top.
3. MVRV indicator: The higher the indicator is, the more overvalued the price is and the higher the risk is. If it is greater than 3.5, the bubble is too large.
4. Greed and Fear Value: The larger the value, the closer it is to 100, the greedier the market is, and the longer the greed lasts, the greater the risk of a crash.
5. Bitcoin related data:
Bitcoin's market capitalization share and turnover rate: the lower the share, the closer to the top of the bull market, generally reaching 30%-40% is high risk; the higher the turnover rate, especially after a sharp increase in turnover rate after a big rise, the greater the risk of a crash.
The proportion of coins held for more than 1 year is less than 45%, which is a high-risk area.
The number of active Bitcoin addresses and the number of newly added addresses: If there is a significant increase or decrease, and the Bitcoin price is at a relatively high level, there may be a risk of a decline.
6. Capital inflow/outflow value: Large-scale capital outflow or a large number of large sell orders indicates the risk of a crash.
7. Bitcoin Rainbow Chart: Entering the orange-red top area is a high-risk bubble area.
8. Puell Multiple indicator: explores the market cycle from the perspective of mining revenue. The value is in the range of 4-10.5, indicating that the current market sentiment is relatively greedy and may be in the tail end of the bull market.
9.Pi indicator: When 111DMA moves upward and crosses 350DMA x 2, it is the top of the cycle.
Second, we need to learn some technical analysis knowledge, mainly:
1. Breaking of key support levels: Support levels are areas where prices are difficult to fall. Once effectively broken, it often means that market sentiment turns pessimistic and may trigger a large-scale sell-off.
2. Overbought and divergence of technical indicators RSI (Relative Strength Index): When RSI exceeds 70, the market is overbought and prices may face correction pressure; Divergence: When prices hit new highs but RSI fails to hit new highs at the same time, it shows that momentum is weakening, indicating a possible decline.
3. Divergence between volume and price: A healthy upward trend requires the support of volume. If prices continue to rise but volume decreases, it may indicate that the market's buying power is weakening and a correction may occur at any time.
4. MACD Death Cross: When the MACD fast line (short-term moving average) crosses below the slow line (long-term moving average), it is called a "death cross", which usually indicates a trend reversal or the beginning of a decline.
5. Bollinger Band Breakout and Reversion: Bollinger Bands consist of upper and lower bands and a middle band, and prices fluctuate within the range. If the price breaks through the upper band and then falls back quickly, it may be a false breakthrough, indicating a market correction.
6. Falling Wedge Breakout: A falling wedge is a continuation pattern. If the price breaks below the bottom of the wedge, it often indicates that a larger decline is coming.
Third, pay attention to the occurrence of some major financial events
We have already described it in detail in the previous article: Bitcoin first broke 100,000, then fell 10,000 points, the global central bank cut interest rates, will the market continue to soar in December? , here we only list some third-party websites for your reference:
1.https://zh.tradingeconomics.com/
Provides global financial data, including economic indicators of various countries, stock markets, bond yields, inflation rates, etc., suitable for economic analysis and investment decisions.
2. https://www.bloomberg.com/
The world's leading financial market data platform, providing real-time financial news, stock and bond data, and in-depth market analysis.
3. https://finance.yahoo.com/
Provides global stock, foreign exchange, futures and other market data, as well as portfolio tracking tools and financial news.
4.https://www.ceicdata.com/ko
Provides global macroeconomic data, industry data and economic development trends of various countries, covering all aspects such as politics, society, and finance.
5.https://bank.fx678.com/FED
Provides economic data and news related to the U.S. Federal Reserve (FED) to help users understand U.S. monetary policy, interest rate decisions and other economic trends.
It should be noted that there are many market data indicators that can be referred to. Here we only simply list some common indicators. All these data indicators ultimately need to be used by people, and there is no absolute correctness. You can choose some to study in depth and deeply understand the logic behind them, so as to help yourself better foresee the crash.
Conclusion
In fact, after reading the above content, we can know how the market will develop in the future: the market sentiment will be repaired by shocks, and then Bitcoin will rise rapidly, followed by a rotation of sectors rising, attracting retail investors FOMO to chase the rise, and then the market will go crazy, a crash will come, and another round of ups and downs will begin.
Here, let's mainly talk about how we can find high-quality coins that can be bought first in the future through this decline: find those coins that have fallen relatively less in this decline and buy them first. As the saying goes, real gold is not afraid of fire. This decline also indirectly helps us test the quality of the coin, for example:
In this round of decline, ETH fell from a high of $4,087 to a low of $3,509, a drop of 14.1%;
SOL fell from $264 to $203, a drop of 23.1%;
ICP fell from $15.6 to $10.7, a drop of 31.4%;
FIL fell from $8.4 to $5.5, a drop of 34.5%;
XRP fell from $2.91 to $1.9, a drop of 34.7%;
DOGE fell from $0.484 to $0.365, a drop of 24.6%;
PEPE fell from $0.000028 to $0.000021, a drop of 25%;
SUI fell from $4.49 to $3.35, a drop of 25.4%;
SHIB fell from $0.0000334 to $0.0000241, a drop of 27.8%;
UNI fell from $19.47 to $14.03, a drop of 27.9%;
It can be clearly seen that currencies with higher market capitalization and more mainstream currencies are more resistant to declines. Of course, when we invest in a specific currency, we must also comprehensively consider our own capital limit and risk tolerance. The higher the market capitalization of the currency, the more stable the yield, but at the same time, the subsequent increase may also be lower. If you are a retail investor with small funds and want to pursue high returns, you have to choose some small currencies, but at the same time you also have to bear higher risks.