In the early morning of the 19th, the Federal Reserve’s last interest rate decision for 2024 was implemented, and there was no unexpected 25 basis point rate cut; but Federal Reserve Chairman Powell sounded "hawkish" in his subsequent speech, and there were voices calling for a slowdown in the pace of rate cuts; subsequently, the Federal Reserve’s dot plot showed that the number of rate cuts expected in 2025 will drop from 4 in September to 2 this month; the median interest rate expectation also rose from 3.4% in September to 3.9% this time.
Subsequently, Bitcoin led the market to begin a downward trend until a stampede and a crash. As of press time, Bitcoin fell from a high of 108,351 to a low of 92,232, a drop of 14.8%; ETH fell from a high of 4,106 to a low of 3,101, a drop of 24.4%; altcoins basically fell by 40% or in half, and the market was once again bloodbathed!
Including this drop, Bitcoin has already experienced three "10,000-point" drops in December, the other two being on December 5 and December 9. Three sharp drops in just one month have made many investors panic, and some even sold their stocks and ran away. So why did this happen? Should we sell our stocks and run away or should we bravely buy at the bottom?
The main force’s idea: take advantage of all negative factors to clean up the market!
Looking back at this round of market, we can see that since December 5, when Bitcoin broke through 100,000, the daily lines of Bitcoin's rise were mostly shrinking, and the daily lines of Bitcoin's fall were mostly expanding. That is to say, when the price fell, the main force was highly involved. After the price fell, the main force took advantage of the fear of retail investors, or when they did not react, and the price could be pulled up at a very low cost, causing retail investors to chase high prices with FOMO, and then fell again, forcing retail investors to sell at a loss. This operation happened 3 times:
The first time: On December 5th, Bitcoin just broke through 100,000 and plunged 10,000 points, but the altcoins did not fall much; then Bitcoin broke through 100,000 US dollars again on the next day, and fluctuated around 100,000 US dollars for three consecutive days, as if the 100,000 US dollar mark was just a small barrier that could be broken through at any time; and because the altcoins did not fall sharply this time, many people thought that the decline of Bitcoin this time was just to wipe out Bitcoin’s own leverage, and began to chase the rise with FOMO, especially many people bought altcoins.
The second time: On December 9, Bitcoin fell below the $100,000 mark again, and the second step on the second day was almost close to the lowest point. This time, the decline of Bitcoin was limited, but it brought down the altcoins! As a result, the deleveraging this time was more thorough than the first time, and 570,000 people were liquidated! But only 4 days later, Bitcoin broke the historical high again! Although the trading volume did not increase significantly, and even shrank slightly, after these two big drops, both Bitcoin’s own leverage and the leverage of altcoins were cleared. A large part of them, many investors thought that it should be healthy to pull up next, and then the third drop came!
The third time: From December 18th to 20th, Bitcoin fell for three consecutive days. The overall decline of Bitcoin was the largest among the three times, and it lasted the longest. This time, after breaking the new high, Bitcoin continued to fall and then fell rapidly, which once again led to the collapse of altcoins! Although the decline of altcoins was not as fast as the second decline, the psychological pressure on investors was greater because it took longer, causing at least more than one-third of retail investors to sell at a loss!
From the perspective of Bitcoin, this decline is a typical three-stage decline (as shown in the figure below). Every time when retail investors thought that the decline would stop and rebound, it fell to a new low again. This three times not only led to the collapse of altcoins, but also the psychology of many retail investors, even many experienced investors.
Looking at the development of the crypto market, especially each round of Bitcoin halving bull market, the main players will use various means to carry out extreme market cleansing. These means include psychological games, news manipulation, technical operations, financial events and macroeconomics, black swan events, flash crashes and flash surges, etc.
The paths are similar: that is, by manipulating the market's sentiment and information flow, creating panic, expectations and emotional fluctuations, thereby affecting the emotions and decisions of retail investors, forcing retail investors to make wrong judgments in price fluctuations and chase highs and sell lows. The main forces then gain profits at high levels and then collect more chips at low levels.
It’s just that the operation methods are changeable and confusing each time, which makes most retail investors unable to defend themselves. In the end, they still follow their emotions instead of overcoming their emotions. This is why it is said that investment is anti-human! Only a few people can overcome their emotions, so only a few people can make money in this market!
Specifically, the reason for this decline, whether it is the hawkish remarks of Federal Reserve Chairman Powell (delaying/reducing interest rate cuts) or the "Christmas robbery" phenomenon mentioned in previous articles, are just inducements. The fundamental reason is that Bitcoin has risen enough and there is not enough new money; and after four rounds of halving, the consensus is too strong and it is too difficult to clean up the market. The market has to be repeatedly ravaged in a short period of time to make retail investors give up resistance and hand over their chips. But if you look at the news, you will know that while retail investors are handing over their chips, institutions are raising money to buy!
Is the annual "Christmas Robbery" so terrifying?
Another reason for the decline is the so-called "Christmas calamity" phenomenon, which means that around Christmas, the crypto market often experiences dramatic price fluctuations, especially large corrections or losses, which has become a routine and is considered a "disaster" market performance. This trend does not occur every year, but in many years, especially when market sentiment is sensitive.
For example, around Christmas 2017, Bitcoin experienced a short correction, falling from a high of nearly $20,000 to about $13,000, a drop of more than 35%; in 2021, the price of Bitcoin fell from $64,000 to about $46,000 around Christmas, a drop of about 28%. Of course, 2017 and 2021 are the tail of the bull market, and the "Christmas disaster" will cause a superposition of declines. The current time period is the early stage of the bull market, and the general background is different, so we cannot simply stick to the old ways.
Around Christmas in 2018 and 2020, Bitcoin also experienced large price fluctuations, causing the entire crypto market to fluctuate up and down.
There are many reasons why Christmas turns into a "Christmas disaster". The specific reasons vary from year to year, but overall they can be divided into the following factors:
Market liquidity has decreased. During the Christmas and New Year holidays, many traders, investors and institutions will take vacations, resulting in a significant drop in market trading volume. When liquidity is insufficient, even small buy and sell orders can cause sharp price fluctuations.
Holiday effect and market sentiment. Christmas is the most important holiday in Europe and the United States, and is also connected to the New Year. Market sentiment is often affected before and after the holiday. Many investors tend to lock in profits or exit the market before the holiday, which will trigger short-term selling and exacerbate volatility. In addition, some investors will conduct tax planning or re-evaluate their investment portfolios at the end of the year, which may also lead to market fluctuations.
As for the news, many traditional financial institutions will be closed for holidays, so the impact of any news at this time will be magnified. For example, the Federal Reserve’s interest rate decision this time was actually a 25 basis point cut, but Powell’s hawkish remarks amplified the market panic, as some chose to temporarily leave the market for fear of insufficient liquidity and inability to raise funds through effective channels, making this 25 basis point cut seem like a 25 basis point hike.
In addition, short-term speculative activities increase around Christmas, that is, some investors and traders may conduct short-term speculative operations to try to seize the market volatility opportunities before and after the holiday. These speculative behaviors will exacerbate market volatility. Short-term high-frequency trading and capital flows will cause price instability, especially when there are large buy and sell orders. The market is prone to violent price fluctuations. Now the crypto market will also infinitely expand this fluctuation due to the widespread use of leverage.
How should investors respond to a possible "Christmas disaster"?
You can take a cautious approach, that is, during Christmas and holidays, be cautious and avoid large-scale transactions; and strictly set stop losses and take profits to cope with extreme market fluctuations; you can also reduce your positions, diversify risks, and avoid investing all your funds in small-cap, highly volatile altcoins.
Overall, the "Christmas robbery" does not occur every year. We need to look at this issue from a long-term perspective. For long-term investment, the fluctuations around Christmas are only temporary phenomena. We should remain calm and stick to long-term investment strategies.
Conclusion
As mentioned in previous articles, every time Bitcoin breaks through an important node, it will be confirmed at least 3 times. I thought this time might be an accident, but there was no accident. Bitcoin broke through 100,000, then fell below 100,000, and went back and forth three times, but the high point was getting higher and higher, that is, Bitcoin fell three times in a month, but the overall price kept rising! From the perspective of liquidation, the total amount of liquidation in three days was about 1.4 billion US dollars, which was lower than the 1.7 billion US dollars on the 9th. 450,000 people were liquidated, which was also lower than the last 570,000 people, indicating that the leverage has been almost cleared.
It has been 8 months since the Bitcoin halving in April. Whether it is the Christmas robbery or Powell's hawkishness, in the long run, it will not affect the rhythm of this round of halving bull market. Moreover, although bad news will delay the bull market, it is often used by the market makers to clean up the market more thoroughly, which will push up the height of the bull market and extend the length of the bull market. So don't be anxious, it is better to take a long-term view!
