Crypto Crumbles - Bitcoin’s 2023 Rally Frays During Brief 7.5% Drop Toward $40,000

Bitcoin delivered another bout of its notorious volatility in a brief but sharp tumble toward $40,000 amid a broader crypto selloff.

Bitcoin faces the largest drop since 2022 amid a broader crypto selloff. (REUTERS)

Bitcoin delivered another bout of its notorious volatility in a brief but sharp tumble toward $40,000 amid a broader crypto selloff.

The largest token sank as much as 7.5% to $40,521 before paring some of the losses to trade 3.6% lower at $42,245 as of 7:15 a.m. Monday in London.

Smaller tokens like Ether, XRP, Polkadot and Cardano also fell. An index of the largest 100 digital assets shed about 4%, the largest drop since Nov. 22.

Bitcoin has been on a tear this year on expectations that regulators will give the green light for the first US exchange-traded funds investing directly in the token, widening the potential base of crypto investors. Bets that the Federal Reserve will cut interest rates in 2024 have also encouraged the rally both in Bitcoin and virtual currencies as a whole.

“Market leverage had risen materially,” said Sydney-based Richard Galvin, co-founder at Digital Asset Capital Management. “The current fall looks like a market deleveraging as opposed to any fundamental news catalyst.”

Coinglass data show that about $312 million worth of crypto trading positions betting on higher prices were liquidated on Dec. 11 as of 7:15 a.m. in London — the highest such tally since at least mid-September.

Awaiting the Fed

Investors are braced this week for US inflation data and the Fed's final policy meeting of 2023, both of which could test aggressive wagers on rate cuts. Global stocks and US equity futures wavered on Monday as a dollar gauge ticked up, a sign of cautious sentiment.

“It makes sense to see some profit taking,” said Tony Sycamore, a market analyst at IG Australia Pty. He expects falls toward the $37,500 to $40,000 range to be “well-supported” by dip buyers.

Bitcoin has jumped more than 150% year-to-date, energizing a wider recovery in digital-asset prices from a $1.5 trillion rout in 2022. The token remains well below its pandemic-era record of nearly $69,000 set just over two years ago. 

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