Since October 6, the crypto market has lost over $1.1 trillion in value. Analysts from The Bull Theory examined the underlying causes of this behavior and identified significant issues causing such poor performance in what was expected to be a bullish fourth quarter for the industry.
This particularly impacted altcoins, with many seeing losses of 70% to 80%. With liquidity diminished, the current market environment allows prices to fluctuate easily, meaning even minor sell-offs can lead to rapid price drops.
The consequences of this thin liquidity are stark; a small volume of selling can generate significant downward price movements. This observation matches the reality of recent market activity, where price declines appear more pronounced than the actual selling volume.
Another contributing factor to the downturn, as pointed out by market analyst Tom Lee, is the behavior of major market makers. According to Lee, the ongoing correction may stem from one or two large entities facing considerable losses.
The Bull Theory analysts contend that this high leverage, coupled with thin markets, enables market makers to trigger substantial liquidations with minimal price movement, making the sell-offs appear more aggressive.
It is worth noting that during the 2020-2021 cycle, Strategy’s cost basis hovered around $30,000 to $32,000. Even when Bitcoin dipped to $16,000—almost 50% below their cost—the company did not sell any coins.
The Fear Index has also plummeted to 10, a level not seen in over three and a half years. The analysts belive that such extreme fear suggests two potential scenarios: either the market has reached its bottom, or it is approaching it.
The analysts suggest that this signals a stretched market on the downside, particularly within altcoins, where speculative activity has diminished and retail interest is waning.
However, it remains to be seen what the eventual direction of the digital asset market will be, as neither negative nor bullish cycles follow straight lines. This suggests that despite the downtrend, a new recovery and future dips may occur, and vice versa.
At the time of writing, Bitcoin was leading Monday’s crypto market drop, trading at $91,940—a 3% drop within 24 hours and a 13% drop within a week.
Featured image from DALL-E, chart from TradingView.com
