Bitcoin failed to stabilize above the $100,000 mark after breaking through it. On the evening of the previous day at 11 PM, it briefly surpassed $100,000 but then slid down, reaching around $94,150 by 5 AM the next day, before rebounding slightly to around $97,000.
Although Bit did not see a significant drop, the performance of Ether was not optimistic. Around 7 AM yesterday, it plunged from $4,000 to around $3,500 before weakly rebounding to around $3,700, a daily drop of over 5%. With Ether's instability, other Altcoins collectively showed "wavering morale".
In the 24-hour decline, the public chain sector saw SOL drop over 8%, SUI over 12%, APT over 16%, and SEI over 16%. In the AI sector, WLD dropped over 19%, ARKM over 20%, and IO over 12%. In the L2 sector, OP dropped over 14% and ARB over 17%.
The contract data was distressing. According to Coinglass data, the past 24 hours saw $1.725 billion in liquidations across the network, with $1.557 billion in long liquidations, affecting a total of around 574,168 people. The largest single liquidation occurred on Binance's ETH/USDT, worth $16.69 million.
If calculated by the number of people liquidated, today's liquidation data even exceeded the "March 12 crash" of over 100,000 people.
The market is in a bloodbath, but what is the root cause of the plunge?
Excessive leverage in the market
The market has a large amount of leverage. As early as December 6, Galaxy Digital CEO Mike Novogratz, in a recent CNBC interview (commenting on BTC breaking $100,000), stated that a global Bitcoin buying frenzy is underway, as it is one of the first globally-recognized assets. He warned that the system memory is heavily leveraged, and he is certain there will be one or two violent pullbacks that "test your soul", as these leverages will eventually be flushed out.
Since Donald Trump's victory on November 5, the open interest in Bitcoin futures has risen sharply, from $39 billion on November 5 to $60 billion in early December, with a frenzy of trading activity and market speculation.
Taking the crypto-crazy South Korea as an example, CryptoQuant data last month showed that the total monthly trading volume of stablecoins on the top 5 CEXs in Korea - Upbit, Bithumb, Coinone, Korbit and GOPAX - was around 16.17 trillion won ($115 billion). This figure includes the total trading volume of stablecoins like Tether (USDT) and USDC issued by Circle, and is a 7-fold increase from the around 2 trillion won recorded at the beginning of the year. This is also the first time South Korea's monthly stablecoin trading volume has exceeded 10 trillion won.
Yesterday, CryptoQuant analyst ShayanBTC's chart also showed that the Ether funding rate indicator in the futures market has soared to its highest level in months, indicating that traders generally expect it to hit a new high. However, the market may need to adjust to maintain this momentum.
Recently, centralized exchanges like Binance and Bybit saw their annualized rates for borrowing USDT reach over 50% during the Altcoin frenzy, indicating that a considerable number of users leveraged by pledging to borrow USDT. The leading on-chain lending platform Aave saw its Ether network USDC deposit annualized rate reach as high as 46%, and its USDT deposit rate reach 34%.
As of the time of writing, the annualized rates for stablecoins on various exchanges and on-chain lending have returned to normal levels.
Global liquidity is continuously declining
Crypto assets are increasingly influenced by macroeconomic factors, while the global liquidity supporting their prices is declining.
Furthermore, many investors believe the Federal Reserve will continue to cut interest rates, but currently, many institutions predict the Fed's rate cut will be limited. Morgan Stanley's economists expect the Fed to cut rates by 25 basis points in December and January 2024, for a total of only 2 cuts.
The market has less and less liquidity fuel, making price increases increasingly difficult. The chart shows the decline has been quite steep, leading some liquidity analysts to warn of an impending correction.
- In the 2017 cycle, this occurred in December 2017, and the bull market ended a month later.
- In the 2021 cycle, this occurred again in April 2021, and a month later, Altcoins crashed 50%.
Weiss Crypto analyst Juan M Villaverde, in analyzing the current crash, stated that it may not be time to sell yet, but it can be seen as a warning that the recent market is unhealthy, and the end result is always the collapse of Altcoins. $100,000 BTC is a critical level - if BTC can break through and stabilize above it again, the current Altcoin rebound will not end prematurely, but if BTC fails to hold $100,000, the fate of Altcoins will likely return to the starting point.
Matrixport's analysis also stated that while stablecoin-related indicators remain at relatively high levels over the past 12 months, the weekly inflow has dropped significantly, from a peak of $8 billion to $4 billion.
This indicator needs to be closely monitored. If the inflow continues to decrease, it may mean the market will enter a longer consolidation period, especially during the typically quieter year-end Christmas holidays. Even if the slowdown in inflows persists, the market performance in 2025 is still expected to be optimistic. Bit is expected to rise steadily, but the short-term gains may be more moderate.
Additionally, CryptoQuant data shows that the Coinbase premium has soared during the Bit decline.
This rebound usually indicates that when a considerable number of retail investors engage in panic selling, US institutional investors are aggressively buying in.
