The cryptocurrency market recently experienced a wave of retracement, with Bitcoin dropping from $100,000 to around $94,150. Altcoins also showed weaker trends, with Ethereum plummeting from $4,000 to $3,500. The number of liquidated positions during this retracement exceeded 100,000, surpassing the “312 crash.”
Bitcoin failed to stabilize after breaking the $100,000 mark. On the evening of the previous day, it briefly surged past $100,000 but then steadily declined to around $94,150 at around 5 AM yesterday. It has since rebounded slightly to around $97,000.
While Bitcoin did not experience a significant drop, Ethereum’s performance is concerning. Yesterday, it plummeted from $4,000 and briefly dropped to around $3,500 before weakly rebounding to around $3,700. Its daily decline exceeded 5%. Ethereum’s instability has shaken other altcoins as well.
In the past 24 hours, notable price declines include SOL with a drop of over 8%, SUI with a drop of over 12%, APT and SEI both with drops of over 16%, the AI sector (WLD) with a drop of over 19%, ARKM with a drop of over 20%, and IO with a drop of over 12%. In the L2 sector, OP dropped over 14%, and ARB dropped over 17%.
Contract data is also bleak. According to Coinglass data, liquidations amounted to $1.725 billion in the past 24 hours, with long positions liquidated accounting for $1.557 billion. In total, approximately 574,168 people were liquidated, with the largest liquidation occurring in the ETH/USDT pair on Binance, totaling $16.69 million.
If we only consider the number of liquidated positions, today’s data even exceeds the 100,000 figure from the “312 crash.”
What caused this market bloodbath?
Excessive leverage in the market
The market is saturated with excessive leverage. As early as December 6th, Mike Novogratz, CEO of Galaxy Digital, stated in a recent CNBC interview (regarding BTC breaking $100,000) that there is a global wave of Bitcoin buying, as it is one of the first global assets. He warned that excessive leverage would eventually be wiped out through one or two intense retracements that could “test your soul.”
Since Trump’s victory on November 5th, open interest in Bitcoin futures contracts has significantly increased, rising from $39 billion on November 5th to $60 billion in early December. Trading and market speculation activities have surged.
Taking the frenzy in South Korea as an example, last month’s CryptoQuant data showed that the total monthly trading volume of stablecoins on the top five South Korean CEXs—Upbit, Bithumb, Coinone, Korbit, and GOPAX—was approximately 16.17 trillion Korean won ($11.5 billion). This figure includes the total trading volume of stablecoins like Tether (USDT) and USDC issued by Circle, which has increased sevenfold compared to the beginning of the year. This is also the first time that South Korea’s monthly stablecoin trading volume has exceeded 10 trillion Korean won.
Yesterday, CryptoQuant analyst ShayanBTC’s chart also showed that the Ethereum funding rate indicator in the futures market had skyrocketed to its highest level in months, with traders widely expecting it to reach a new all-time high. However, the market may need to adjust to maintain this momentum.
During the recent altcoin frenzy, various centralized exchanges such as Binance and Bybit offered annualized interest rates of over 50% for borrowing USDT. This data indicates that many users increased their leverage by pledging assets to borrow USDT. AAVE, the leading on-chain lending platform, offered an annualized interest rate of up to 46% for USDC deposits on the Ethereum network and a 34% interest rate for USDT deposits.
As of the time of writing, the annualized rates for exchanges and on-chain lending stablecoins have returned to normal levels.
Global liquidity continues to decrease
Cryptocurrencies are increasingly influenced by macroeconomic factors, while global liquidity, which supports their prices, is diminishing.
Furthermore, many investors believed that the U.S. Federal Reserve would continue to lower interest rates. However, some institutions now predict that the Federal Reserve’s rate cuts may be limited. Morgan Stanley economists expect the Federal Reserve to cut interest rates by 25 basis points in December and January, totaling only two cuts.
As market liquidity fuel decreases, price increases become more difficult. The steep decline shown in the chart above has liquidity analysts warning of an upcoming correction.
During the 2017 cycle, this situation occurred in December 2017, and the bull market ended one month later.
In the 2021 cycle, this situation occurred again in April 2021, and one month later, altcoins plummeted by 50%.
Juan M Villaverde, an analyst from Weiss Crypto, stated in his analysis of this recent crash that it may not be the right time to sell, but it should serve as a warning. The market has been unhealthy lately, and its ultimate outcome always involves the collapse of altcoins. The $100,000 level is critical for Bitcoin. If Bitcoin can break and stabilize above this level again, the rebound of altcoins will not end prematurely. However, if Bitcoin fails to stabilize above $100,000, altcoins are likely to return to their starting point.
Matrixport stated in its analysis that although stablecoin-related indicators are still at relatively high levels in the past 12 months, weekly inflows have significantly declined from a peak of $8 billion to $4 billion.
This indicator needs continued monitoring. If the inflow continues to decrease, it may indicate that the market will enter a longer consolidation period, especially during the usually quieter Christmas holiday season. Even if the trend of slowing inflows continues, the outlook for the market in 2025 remains optimistic. Bitcoin’s price is expected to steadily rise, but the short-term growth may be more moderate.
Additionally, according to CryptoQuant data, while Bitcoin was experiencing a decline, Coinbase’s premium soared.
This rebound usually indicates that when many small retail investors panic sell, U.S. institutional investors aggressively buy in.
