Journalist
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On December 16, Bitcoin [BTC] fell 4.5%, dropping to $85.7k in early trading hours.
At the time of writing, Asian shares were heading lower, with the Nikkei 225 fell by 784 points, or 1.56%. This decline also weighed on the cryptocurrency market, where total capitalization fell 4.4% before a small recovery occurred in recent hours.
In the short term, the $85.7k level was defended and Bitcoin managed to bounce higher to $86.5k. However, the market remains fearful and volatile. CoinGlass data revealed that $652 million in crypto was liquidated in the last 24 hours.
Surprisingly, Ethereum [ETH] saw more liquidations than Bitcoin. It amounted to $233.5 million ($205.1 million in longs) for Ethereum liquidations, compared to $184.8 million for Bitcoin ($168.8 million in longs).
In a message at CryptoQuant Insights, XWIN Research Japan noted that liquidations were not primarily the result of spot selling. On the contrary, the build-up of highly leveraged liquidations below key near-term support levels could amplify the decline.
Liquidated long positions are forced to sell, creating taker sell orders that can lead to more liquidations, forming a cascade. They argued that this decline was a healthy reset, removing additional leverage and creating the conditions for a stable, smooth recovery.
AMBCrypto found that traders should expect more price declines in the short term.
Why BTC Prices May See More Volatility
Since December 7, the BTC has been Open Interest (OI) has increased. Although the price has fallen in recent hours, the overall trend is still up over the past week.
Similarly, the Estimated Leverage Ratio (ELR) metric also saw a sharp increase from December 10. The metric measures the exchange’s OI divided by its coin reserve.
The rapid rise in ELR suggested more OI, or less BTC in Exchange Reserves, or both.
AMBCrypto analyzed the 7-day moving average of exchange net flows and confirmed that Bitcoin has been flowing out of exchanges on average over the past month. This trend helps explain the behavior of the ELR.
Meanwhile, rising OI despite falling prices points to an increase in short selling activity. It also increases the risk of sharp liquidity chases in either direction, which will increase potential volatility in the coming days.
Concerns remain that the local support at $84,000 may not hold, not only due to volatility fears but also broader market pressures.
On-chain analyst Axel Adler noted that the market phase index remained in the 0.38 range. This reads like a “maintenance of the transitional regime“The selling pressure has not increased, but there is also no sustainable recovery.
The indicator must rise above the 0.43 level to provide a signal of market strength. Until then, traders and investors can maintain a bearish bias.
Final thoughts
- During the Asia session, stocks fell due to investor fear, with Bitcoin also falling almost 4.5%.
- The BTC market remained in control of the sellers and no sustainable recovery was underway.