$18 Billion Wiped Out of Crypto in 2 Days, What’s Causing Extreme Volatility?
Following Christmas and a strong corrective rally on Christmas Eve, the crypto market lost over $18 billion within a 48-hour period.
The Bitcoin price dipped below the $3,800 mark after a promising price surge to $4,300 and the Bitcoin Cash price suffered a large decline from $230 to $170 within a one-week span, losing 26 percent of its value against the U.S. dollar.
Factors Behind Wild Volatility in Crypto
Throughout the past week, investors in the cryptocurrency market have been generally positive on the short-term trend of Bitcoin and other major crypto assets, given the dominant cryptocurrency’s strong recovery to the mid-$4,000 region.
But, many analysts also cautiously suggested that the cryptocurrency market is still in a bear market and while it may be in the last phase of a year-long downtrend, a high level of volatility in a low price range is expected.
On December 21, prior to a rally that allowed the crypto market to add over $40 billion to its valuation, a cryptocurrency trader with the online alias “The Crypto Dog” said that a rally above key resistance levels in the $5,000 to $5,500 range is unlikely in the short-term despite some momentum major crypto assets showed.
The trader wrote :
Bitcoin found support near historical highs at $3,000. Earlier this week, I watched Bitcoin’s volatility and sell volume stall the further its price fell, leading me to wonder if the fabled ‘$3,000 support’ would be front ran. It was. If bulls are able to push past $4500, $4800 is the last bump in resistance that stands in the way before $5,400. At this time I am not anticipating a rally beyond $5,500, nor can I guarantee more relief even past $4,500, though we must not count any scenario out.
https://twitter.com/TheCryptoDog/status/1075829339122323456
For the crypto market to initiate a proper bull rally and a mid-term uptrend, it will have to undergo a several-month-long consolidation and accumulation period during which the value of cryptocurrencies rise gradually against the U.S. dollar.
From August to November, for just over three months, the cryptocurrency market demonstrated a record low volatility rate but it still was not enough to stabilize the market and establish a solid bottom.
$3,120, the lowest point the Bitcoin price achieved in 2018, could be the bottom for the asset. Immediately after the asset fell to $3,120, a large buy wall was created in that price range, allowing the market to recover.
The bottom was most likely reached at $3,120, but unless the market stabilizes and demonstrates gradual momentum, it is not possible to conclusively state that a proper bottom has been achieved.
When Will Volatility Stop
Until the cryptocurrency market shows a high level of stability in an extended time frame, the market will continue to demonstrate extreme volatility in a low price range.
The volatility of crypto-assets shown in the past week was unexpected because of the intensity of the movements on both the upside and downside.
