The crypto market saw a significant crash on December 9, with Bitcoin dropping 7% and altcoins experiencing even larger losses. More than 562,000 traders were liquidated in a single day, totaling $1.7 billion in liquidations. This marked the largest leverage flush since April 2021 when $10 billion in crypto futures liquidations occurred in one day.
Following the crash, Bitcoin and most altcoins staged a recovery, although they have yet to return to their pre-crash levels. The underlying cause of the crash was increased selling pressure on Coinbase, leading to a chain reaction of liquidations. Overheated funding fees and rising open interest levels indicated overleveraged positions, resulting in a market breakdown.
The effects of the crash were uneven across different cryptocurrencies, with Bitcoin displaying distinct characteristics from other instruments. Ethereum showed signs of accumulation on the way down, suggesting a major buyer may have taken advantage of the dip. XRP on Coinbase experienced abnormal sell orders, leading to a swift crash that spilled over into perpetual swaps trading.
Macro analyst Alex Krüger viewed the crash as a normalizing force in a highly leveraged market, with more potential leverage flushes expected in the coming months. Despite the volatility, Krüger believed the overall trend for digital assets remains positive, especially under potential future conditions like a pro-crypto US administration. At the time of the article, Bitcoin was trading at $97,401.
Overall, the crypto market crash on December 9 was driven by increased selling pressure and overleveraged positions, leading to a chain reaction of liquidations. While Bitcoin and most altcoins staged recoveries post-crash, they have yet to reach their pre-crash levels. The event highlighted the volatility and liquidity constraints faced by cryptocurrencies, with potential for more leverage flushes in the future as the market normalizes. Despite the short-term turbulence, analysts remain optimistic about the long-term prospects for digital assets.
