The cryptocurrency market plummeted by 2.10%, with BTC leading the decline due to easing tensions in the Middle East and selling pressure, raising the market capitalization to $3.17 trillion.
The cryptocurrency market has experienced a significant decline, with a market value drop of 2.10% in the past 24 hours. The current market capitalization is $3.17 trillion, marking the lowest point in five days. With the easing of tensions in the Middle East and other global developments, Bitcoin and other major assets face immense selling pressure, leading to a collapse in the cryptocurrency market.
U.S. President Biden announced that Lebanon and Israel have agreed to a U.S.-mediated proposal to end the Hezbollah conflict.
Meanwhile, uncertainty in traditional markets continues due to former President Donald Trump's tariff threats. At the same time, the cryptocurrency fear and greed index has dropped to 79, the lowest level in two weeks, but still remains in the 'extreme greed' range.
The overbought condition of Bitcoin has triggered profit-taking.
The price of Bitcoin is the focus of this cryptocurrency market collapse, falling from a high of $99,830 on November 22 to the current $91,377, a decline of over 8%. Data from CryptoQuant shows that Bitcoin's profit and loss ratio (P/L) has reached a level comparable to the $73,400 peak in March 2024, indicating significant profit-taking among long-term holders.
Historically, some investors have seen cryptocurrencies like Bitcoin as a hedge against geopolitical instability. However, Biden's announcement of progress in the Lebanon-Israel conflict has led to a decrease in safe-haven demand.
At the same time, recent analyses show that long-term holders have transferred $60 billion worth of Bitcoin supply in the past 30 days, with November being the month with the most significant profit-taking in this market cycle. This behavior typically occurs near market tops, as retail investors absorb supply in a bullish trend, increasing selling pressure.
Additionally, the bearish divergence between Bitcoin's price and the relative strength index (RSI) on the daily chart indicates market overbought conditions, further preventing the asset from breaking through the $100,000 level.
The futures market reflects rising volatility and downside risks.
The collapse of the cryptocurrency market has also spread to the Bitcoin futures market, with over-leveraged positions exacerbating market volatility. Derive founder Nick Forster pointed out that traders are turning to protective strategies, as reflected by a 30% drop in the call-put skew index for Bitcoin options expiring on December 27.
Forster explained, 'Traders are hedging against potential price declines.' Options data shows that by the end of December, the probability of Bitcoin reaching $81,493 or climbing to $115,579 is 68%. The likelihood of extreme volatility is also low at 5%, such as dropping to $68,429 or surging to $137,645. Bitcoin options worth $11.8 billion are set to expire on December 27, which may trigger significant price fluctuations.
Despite the high volatility, Forster pointed out that Bitcoin's 7-day and 30-day implied volatility levels remain stable at 63% and 55%, respectively. Market observers are closely watching the futures market, as it remains the primary driver of short-term price movements.
Altcoin performance has been mixed during the collapse.
Altcoins' responses to the ongoing collapse of the cryptocurrency market are mixed. The downside includes The Sandbox (SAND) dropping 12.03%, while Stellar (XLM) and Decentraland (MANA) fell by 10.07% and 8.24%, respectively. Other notable decliners include Arbitrum (ARB), Maker (MKR), and Ethereum Classic (ETC), all dropping more than 5%.
On the other hand, despite the overall market decline, some altcoins have still managed to rise. Fantom (FTM) leads with a gain of 13.86%, followed by Sei (SEI) and Injective (INJ), which increased by 13.55% and 13.05%, respectively.
Algorand (ALGO) also increased by 10.59%, with other rising currencies including Sui (SUI) and Theta Network (THETA). Analysts suggest that as Bitcoin consolidates, capital may flow into selected altcoins.
Will the cryptocurrency market stabilize after the collapse or continue to decline?
The collapse of the cryptocurrency market has raised questions about whether the market will recover or face further declines. MN Trading founder Michael van de Poppe pointed out that the market shows signs of overheating, including high volatility and a surge in margin positions.
He stated, 'Although some altcoins may continue to perform well, the probability of Bitcoin consolidating sideways for the long term is quite high.'
Despite the uncertainty in the short term, institutional investors like MicroStrategy remain bullish on Bitcoin. Founder Michael Saylor recently announced that the company purchased 55,500 Bitcoins at an average price of $97,862, bringing its total holding to 386,700 Bitcoins. This indicates that despite challenges in the market, investors still have confidence in Bitcoin's long-term potential.
