Introduction
The crypto market which saw a rally in the past month has quickly suffered a flash crash in a tragic scenario where bitcoin dropped 7% in one candle which caused a ripple effect or shock waves to occur to the surrounding altcoin market which were initially in a rally, causing them to lose steam. In the wake of this event there have been some revelations of what could have triggered this sharp movement which has brought an aftermath of almost $90m liquidation to BTC long positions and nearly $80m liquidation to ETH long positions for traders.
Why the sudden crash; what we don’t know.
It is important to note that the attention of the public has been brought to the filings for the Bitcoin and Ethereum spot ETF by public figures that are not even in the crypto space or might have even criticized crypto in the past, in the likes of Larry Flinch the CEO of the largest asset manager company in the world. This has brought about positive speculations that helped push the prices of bitcoin and recently the altcoins too. However we can’t attribute all the credit to this speculation alone , as there have been other macroeconomic factors that have also fueled this recent pump in the market such as the lowered interest rates and drop in inflation date, drop of unemployment in the US.
Another key reason why the crypto assets and even stocks have seen a rise in prices is due to the DXY. The DXY is an indicator used to measure the strength of the US dollar. Crypto prices as it were are inversely correlated to the DXY.
DXY suffered a huge drop just about the same day bitcoin almost hit $45k. It is important to note that when the DXY falls other assets including crypto assets rise and vice versa. Recently the DXY which has been falling showed signs of a local bottom(A bottom is the lowest price traded or published by a financial security, commodity, or index within a particular referenced time frame, but since it’s the local bottom, that is given by the time range of few days to few weeks), this could foreshadow a short correction in crypto assets.
The direction of the DXY depends on what the FEDs say in their next meeting this week(12th – 13th Dec).
How low can the market dip?
The BTC chart did show that it could drop to a 10% correction as the charts shows btc double top pattern on the weekly time frame which was recently corrected overnight today after touching the $40k levels where the support was strong and the trend reversal was rejected back to the upside where it is now sitting between the $41k and $42k levels.
But what the market will do next is dependent on the DXY direction which also depends on the reports of the FED’s meeting.
Final thoughts.
As you trade please expect flash crashes in this pre-bull run rally and also take profits where necessary. We are yet to see the full extent of the beginning of this bull but at the same time we might not be totally out of the bear leaving one more likely chance of another dip before the full transition into the bull season.
That’s a wrap guys see you on the next one.