Bitcoin’s 2023 Rally Falters as Crypto Takes a Hit with a Brief 7.5% Drop Towards $40,000

In a wider cryptocurrency sell-off, Bitcoin experienced its characteristic volatility once again as it swiftly and sharply dropped towards the $40,000 mark.

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

Smaller tokens such as Ether, XRP, Polkadot and Cardano also fell. An index of the top 100 digital assets fell about 4%, the biggest drop since November 22.

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

“Market leverage had increased significantly,” said Sydney-based Richard Galvin, founder of Digital Asset Capital Management. “The current drop appears leveraged by the market, as opposed to any fundamental news catalyst.”

Data from Coinglass shows that around $312 million worth of crypto trading positions betting on higher prices were liquidated at 7:15 a.m. in London on Dec. 11 — the highest such amount since at least mid-September.

Waiting for Fed

Investors this week are bracing for US inflation data and the Fed’s last policy meeting in 2023, both of which could test aggressive rate cuts. Global stocks and U.S. stock futures were fluctuating on Monday as the dollar ticked up, a sign of caution.

“It makes sense to see a profit,” said Tony Sycamore, market analyst at IG Australia Pty. He expects dips between $37,500 and $40,000 to be “well supported” by dip buyers.

Bitcoin is up more than 150% year to date, fueling a broader recovery in digital asset prices from a 2022 $1.5 trillion crash. The token remains well below its pandemic-era high of nearly $69,000, set just over two years ago.