A widely followed trader is having a close look at the state of Bitcoin to determine when the leading cryptocurrency can launch the next leg of its bull cycle.
Top crypto trader Light dissects the sell-side catalysts that pushed Bitcoin (BTC) from the all-time high of around $69,000 to its 30-day low of $42,874.
According to Light, objective market participants began to sell their holdings after bulls showed signs of exhaustion around BTC’s all-time highs.
“Yet as people were maximally bullish, momentum flagged, price failed to continue, and then came back below the high. Objective observers’ caution turned into derisking, and those not swept up in the euphoria of new highs sold billions upon billions of inventory in the $60,000s on BTC.”
While traders and investors lock in gains, Light adds that funds that already made big money this year also took profits.
“After the year of years that was 2021 for funds everywhere, eyes turned to protecting annual bonuses, selling to harvest 20% carries, and covering redemptions from LPs looking to take some off the table.”
Lights tells his 103,300 Twitter followers that the increasing selling pressure on an already weak market ignited a sell-off that saw BTC print a $10,000 red candle in the daily chart.
“Liquidity deteriorated, and finally a trivially predictable 25% cascade down in BTC put the fear of god in an overleveraged market.”
According to Light, the massive drawdown has driven retail traders into a panic. But just as they are looking to exit the BTC market, the trader says investors who sold at the top are now looking to reaccumulate BTC.
“Whereas bulls have been cautious, bears have taken to aggression, pushing perpetuals basis negative on some venues and building [open interest], while the large players who derisked in the $60,000 area have reversed course and begun to absorb panic and short-selling.”
In addition, Light says that funds are nearly done selling and are now armed with cash to place buy orders in January.
“BTC has pulled back 35%, reaching a historical value area, while leverage has returned to constructive levels, and participants once again have cash. It’s the bears that will likely turn out to be stoneless soon enough.”
The crypto trader concludes that events are lining up for a strong crypto recovery next month as he also sees selling pressure from Asia abating by the end of the year.
“Asia selling has driven market, which will ease after end of year when Huobi/OKEx have removed majority of mainland users… End of year and then blue skies.”
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