Why did the crypto market drop amid the bull run?

Discover the factors behind the abrupt crypto market sell-off on Dec. 11, including insights into Bitcoin’s and Ethereum’s sharp price drops.

The crypto market, which has been on an upswing lately, has recently taken an unexpected turn. Just when investors thought the bull run was unstoppable, the market cap and prices of cryptocurrencies took a sharp dip on Dec. 11, interrupting eight consecutive weeks of bullish trends.

In a startling 24-hour period, the total crypto market cap plummeted from $1.64 trillion on Dec. 10 to just under $1.56 trillion on Dec. 11. 

Bitcoin (BTC) tumbled from the $44k mark to $41k levels, marking a decline of approximately 6.09%. 

Similarly, Ethereum (ETH) followed suit. ETH’s price dropped from around $2380 to $2170 in the same time frame, a decrease of about 8.82%.

Despite this abrupt setback, the market’s bullish sentiment seems undeterred. In a swift rebound, BTC is trading at around $42,350 as of this writing, and ETH has climbed back to approximately $2246. 

Interestingly, the market’s Greed and Fear Index has hit a high score of 80, indicating extreme greed and suggesting that the bull run is far from over.

Let’s unravel the factors behind this sudden downturn and find out what caused this abrupt sell-off and what we can expect from the crypto market in the coming days. 

Decoding the reasons for the decline

The following reasons could have added to the decline in crypto prices: 

Profit booking

The sharp fall in the crypto market on Dec. 11, 2023, could be partly due to profit booking by investors. 

As per the data from Crypto.com, Bitcoin futures’ open interest reached a new high for the year at US$4.87B on Dec. 10. 

This spike in open interest, representing the total number of outstanding contracts that have not been settled, can indicate increased trading activity, often leading to profit booking when the market appears overextended.

Meanwhile, the daily relative strength index (RSI) of BTC was above 70 starting from the first week of December, reaching nearly 82 at one point, signaling overvaluation. 

When the RSI is too high, it often means the market is overbought, leading to a peak as buyers reduce and sellers increase. After the recent sell-off, the RSI dropped to 63, indicating the market is no longer overbought.

Miners on a selling spree

Since October 2023, there’s been a noticeable drop in Bitcoin miner reserves, suggesting a heightened selling activity. As Bitcoin’s price stabilized around $44k levels in the last couple of days, it prompted miners to sell their supply on exchanges to book profits. Consequently, BTC miner reserves fell from about 2.06 million in October to roughly 2 million by Dec. 11, a 3% decline, data from TradingView suggests.

Moreover, data from TheMinerMag highlights that in October, publicly-traded Bitcoin mining companies sold a significant part of their mined digital assets, seizing the opportunity presented by the market rally. 

In that month, 13 public mining companies sold 5,492 BTC, worth about $164 million, capitalizing on Bitcoin’s 30% monthly increase. This sale represented the total Bitcoin production of these companies for October.

Recent remarks from JPMorgan CEO

JPMorgan Chase CEO Jamie Dimon’s recent statements regarding cryptocurrencies have also likely contributed to the market’s unease and recent price declines. 

During a recent Congressional hearing, Dimon strongly criticized Bitcoin and the broader crypto industry, stating that if he were in government, he would shut down the industry. 

He argued that cryptocurrencies are mainly used for illegal activities like money laundering and drug trafficking, emphasizing the pseudo-anonymity and instant money transfer features that make them attractive for such purposes. 

Dimon’s deep-seated skepticism towards cryptocurrencies, particularly Bitcoin, and his suggestion that the government should intervene and shut down the industry might have contributed to the downturn in crypto prices. 

While Dimon has been a vocal critic of cryptocurrencies, labeling them as tools for criminal activities, it’s interesting to note that his firm, JPMorgan, has been expanding its blockchain and digital currency operations.

What to expect next?

Bitcoin has demonstrated strong resistance at the $44k levels, indicating that buyers have exhausted the current stimulus and are awaiting a new trigger to start the next rally.

The approval of spot Bitcoin ETF applications is a significant event on the horizon and could act as the next big trigger. 

According to Bloomberg analyst James Seyffart, the U.S. Securities and Exchange Commission (SEC) is lining up to potentially approve all bids for a spot market Bitcoin ETF in January. 

This anticipation follows the SEC making earlier-than-expected rulings on some bids, which indicates a potential wave of approvals in early January. 

The approval window is expected between Jan. 5 and 10, 2024, with decisions likely on Jan. 8th, 9th, or 10th. 

Meanwhile, BlackRock and Bitwise have filed updated applications for their spot Bitcoin ETFs, signaling progress and the SEC’s willingness to move forward.

Given the expected events and the inherent nature of the crypto market, investors should brace for heightened volatility in the coming days. It’s important to trade cautiously and remember the golden rule of investing: never invest more than you can afford to lose.