Market Analysis of Cryptocurrencies: Record-Setting Crypto Liquidation Event

By far the most talked-about topic this week was none other than the late Friday afternoon bloodbath that hit cryptocurrencies – especially altcoins – leading to the largest liquidation event in the entire history of the asset class.
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Now that the dust is settling, we can begin to unravel what happened, work on anticipating the next move, and make preparations to better protect oneself from sudden, violent drawdowns in the crypto market.

Bitcoin Bloodbath Prompts Altcoin Annihilation 

Late Friday afternoon, just as US markets were coming to a close, US President Donald Trump revealed a “100%” tariff on Chinese imports, causing a sharp selloff in Bitcoin (BTC). The price of Bitcoin dropped by 14% to $104,000 within an hour. 
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While that fast of a 14% drop in BTCUSD is devastating by itself, altcoins began sinking at the same time. Because there’s less liquidity in the order books in many altcoin markets, prices began to cascade lower rapidly, taking out stop losses and liquidating traders. Altcoins suffered losses as deep as 40 to 70% in many instances.

The violent drop reportedly caused a total of $19 billion in liquidations – mostly long positions. Data suggests that this collapse was as much as 20 times worse than the Black Thursday crash during the onset of COVID.

Can Crypto Recover Before the End of the Year?

Prior to the record-breaking liquidation event, several altcoins began to show signs of renewed strength. Binance Coin (BNB) has set another new all-time high and kept climbing. Litecoin (LTC) was up nearly 20% and eying a breakout through long-term downtrend resistance.
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High timeframe support across the market appears to be holding thus far, but must continue to hold strong through the end of the month to confirm. Bitcoin, for example, is holding the Bollinger Band basis, keeping hope alive for eventual continuation to the upside when the coast is clear around the Chinese tariff situation.

Bitcoin, Ethereum (ETH), and Solana (SOL), all held up particularly well during the drawdown, highlighting the differences between coins with ample liquidity and those without.

Volatility in Crypto Making a Powerful Comeback

Since its inception, Bitcoin and the rest of the crypto market has been known for its volatility. However, the last several years have been relatively smooth for Bitcoin and altcoins. We’ve not witnessed the repeated sharp drawdowns from past bull markets, and instead seen what’s been referred to as a “structured institutional bid.”
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Volatility metrics such as Historical Volatility or Bollinger Band Width have reached record-setting low readings, suggesting that we’ve been in the lowest volatility phase ever. Volatility is cyclical, however, and low volatility phases alternate with high volatility phases.

The latest move in Bitcoin and altcoins could merely be the start of a more volatile phase for the asset class – one that’s more characteristic of cryptocurrencies. Such volatility is necessary for extremely powerful price movements. So while the recent liquidation event was painful for those affected, it could be the spark the market needed to explode higher.

Momentum Nears a Defining Cyclical Pivot

If this wasn’t the spark that helps propel the crypto market higher, cyclical timing and teetering momentum could turn the overall market sentiment fully bearish. For example, the TOTAL cryptocurrency market cap index is on the cusp of a bearish crossover of the monthly LMACD. The last two monthly bearish crossovers on the index kicked off a bear market and between a 74 to 88% drawdown.
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Bitcoin’s LMACD has already confirmed the bearish crossover last month. Data indicates that there’s typically a 70% drop within months of the signal confirming. In some cases, the drop happened after the signal firing, while some happened prior to the signal’s appearance. In at least one instance, Bitcoin price rallied by 50% before the 70% drop. A 50% rally in Bitcoin from current prices would take the top cryptocurrency by market cap to over $167,000 per coin.

Meanwhile, Ethereum’s LMACD is still showing strengthening bullish momentum, making for an overall mixed outlook.

Getting Back into Crypto After the Black Swan

Crypto traders and investors are licking their wounds, wondering what to do next. Many might fear reentering the market, but it is impossible to make a return on investment without market exposure. Another mass liquidation event any time soon is also unlikely. Speculators were wiped out, meaning that there’s less overall leverage in the market that would cause such an event to occur.
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Considering the chance of a trend change from bullish to bearish, it is ideal to focus on shorter-term trading setups. With volatility picking back up across the market, there are ample opportunities for trading available to those willing to take on the risk currently.
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For those that want to make a return and take on the risk, focus on proper risk management, including keeping leverage to reasonable levels, setting a stop loss, and only investing what you can afford to lose. Protecting your capital ensures you can trade another day. 

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