The cryptocurrency market was volatile throughout 2024, experiencing a significant shake-up. Additionally, Bitcoin exceeded $100,000 in December, only to plummet. This article looks into why is crypto crashing and will it recover?
Despite many buy orders, Bitcoin dropped below $99,000 on Dec. 19 after the Federal Reserve cut rates. However, the rate cut wasn’t the only factor. It dampened investor spirits. This happened because Federal Reserve Chair Jerome Powell seemed to ease on future rate cuts. Yet, this brief dip didn’t last. Bitcoin quickly bounced back and surpassed $100,000.
Altcoins mimicked Bitcoin’s new volatility as they dropped below their key support levels and then rallied hard. There have been questions about why the market moves this way. Here’s a brief overview of the top headlines from the past 24 hours.
- Europe is the first to see Bitwise’s new Solana staking ETP, which yields a 6.48% annual percentage yield (APY) with a 0.85% fee. So, is it necessary, considering plenty of staking options already exist?
- After crypto supporters blocked Caroline Crenshaw’s SEC renomination, they rallied 100,000 fans. Could this indicate the crypto world’s political potency in the future?
- Following the Federal Reserve’s rate cut, Bitcoin’s dip to $99k raised questions about why it dropped so quickly.
- The Bitcoin Mini Trust ETF has $4 billion in assets and a 0.15% fee, the industry’s best in class. The product is now being noticed, and we see significant market sentiment change.
- As Arthur Hayes states, Trump’s Inauguration day may see a crypto market downturn, sparking questions about why he is forecasting such a sell-off.
Why Is Crypto Crashing And Will It Recover?
Bitcoin dropped below $100,000 this week as the cryptocurrency market took a major hit. This shift is reflected by the Crypto Fear and Greed Index, which fell from an ‘extreme greed’ reading of 88 to 69. This sudden change has left many investors worried about the market. The most known reason for the decline is a serious concern.
On Dec. 19, Bitcoin traded around $102,300, and Ethereum decreased to $3,600. Tokens like Cosmos, Floki, THORChain, Curve DAO Token, Fantom, and dozens of others plunged among the biggest decliners.
The Federal Reserve’s recent monetary policy decision was a primary factor in the market’s downturn. On Dec. 18, the Fed cut interest rates by 0.25%, a total of 1% this year. Though this was expected, the Fed’s forward guidance battered markets. Officials said they expected two more rate cuts in 2025 and continued to call for a tight stance on inflation control. Projections suggest inflation could only reach the 2% target by 2026 or 2027.
The Federal Reserve’s hawkish tone reverberated across financial markets. The Dow Jones and Nasdaq 100 indices fell more than 2% in U.S. equities. The 10-year yielded 4.557%, and the 30-year yield rose to 4.7%, each posting multi-month highs. The U.S. Dollar Index surged to a two-year high, putting pressure on risk assets like crypto funds.
Following the Wyckoff Method, the crypto market declined due to profit-taking, panic selling, and mean reversion. Investors often sell to lock in gains after rallies, causing pullbacks. This ties to mean reversion, where assets return to their averages after a rise. For instance, if Solana’s price weakens and stays 20% above its 200-day average, it might face further drops. Yet, the future remains uncertain.
The Wyckoff Method describes four phases in an asset’s life: markup, distribution, accumulation, and markdown. Recently, cryptocurrency prices surged. The drop might indicate a shift to markdown or signal the end of the distribution phase.
Analyzing Bitcoin’s Stability Amid 2024’s Least Volatile Cycle
Bitcoin’s ‘least volatile cycle of date’ has been 2024. Federal Reserve Chair Jerome Powell’s cautious remarks to the market further hammered the metal. Powell said the Fed will likely lower rates by 50 basis points in 2025 rather than the four previously expected, and 1972 remains the earliest time Bank of America economists see the Fed finally returning to a neutral policy stance. The announcement tempered optimism among investors and created concerns about steeper declines in risk assets like cryptocurrencies.
However, according to on-chain analytics provided by Glassnode, Bitcoin’s development course is much more measured. As Bitcoin market capitalization has grown, historically, the severity of drawdown periods during bull cycles has decreased. This cycle saw Bitcoin’s drawdown bottom at 32%, less than the cycle’s 63% drawdown in 2021, 36% in 2017, 71% in 2013 and 49% in 2011.
Bitcoin has retraced from its all-time high of $108,366 on Dec. 19, bringing itself down to $98,744. Based on Bitcoin’s cost-basis distribution, Rafael Schultze-Kraft, founder of Glassnode, found a specific price range, from $99,000 to $97,000, to be a major support zone. This metric rates where the greatest Bitcoin supply was bought and sold across distinct price levels.
From a technical standpoint, Bitcoin has a strong bullish market structure on mid and long-term charts. By examining on-chain support levels in combination with broader market analysis, this critical zone between $97,500 and $95,500 has been pinpointed.
Historic Trends in Crypto Market Volatility
Volatility defines the cryptocurrency market. Why is crypto crashing and will it recover? Prices can swing dramatically, even in hours. For instance, Bitcoin often surges and then corrects sharply. Similarly, altcoins can skyrocket or fall just as quickly. This uncertainty both intrigues and scares investors.
The 2011 Mt. Gox Hack: In June 2011, following a security breach at Mt. Gox, the largest Bitcoin exchange, Bitcoin’s price dropped from $32 to $0.01. This event raised concerns about the security of cryptocurrency exchanges. In February 2013, Bitcoin recovered, and new highs were reached.
The 2013–2015 Bear Market: In December 2013, just before Bitcoin hit an all-time high at roughly $1,151, it tanked by over 80% as China cracked down on counterfeit coins and Mt. Gox fell apart. Bitcoin didn’t see a real leg up in the market until late 2015 when it started to recover slowly.
The 2017 Boom and 2018 Crash: Bitcoin enjoyed a ride above $20,000 in December 2017 as investors and the media became interested. Yet by December 2018, it had collapsed by about 80% to less than $3,200, far and away the largest cryptocurrency curveball in history.
The 2020–2021 Rally and Subsequent Decline: 2021 Bitcoin hit a new all-time high of over $64,000 in April, as institutions joined the party and the economy was stimulated. Next, there was a sharp fall to approximately $31,000 in May due to regulatory concerns and environmental censures of Bitcoin mining. Later in the year, the market partially recovered and saw Bitcoin move up to about $67,000 in November.
The 2022 Market Downturn: Terra-Luna and FTT’s FTX Bankruptcy were two major blowbacks many in the cryptocurrency market faced in 2022, with investors incurring losses. Bitcoin’s price dropped to under $20,000 during this period due to a broader market crash.
The 2024 Resurgence: Factors like increased institutional investment in Bitcoin, political developments favoring cryptocurrencies, and the approval of spot Bitcoin ETFs all conspired to bring Bitcoin to $100,000 by December 2024. It shows the market’s popularity of digital assets and a metric of their strength and growth.
It is easy to see that the cryptocurrency market is so boom-and-bust and how quickly it recovered, sometimes even better than before.
Will The Crypto Market Recover?
Over the last month or so, Bitcoin trends have led to higher cryptocurrency prices, and there is a hint of an imminent rebound. Why is crypto crashing and will it recover? In the near term, Bitcoin’s cup and handle will give a deluge toward $124,000. A recovery like this could also help soothe other altcoins and entice investors to buy lower when prices are down.
But caution is advised, as first recoveries following a fall can produce a “dead cat bounce.” In this phenomenon, an asset drops sharply but recovers, only to drop again soon after.
