On December 4, 2021 there was a flash crash of the bitcoin price , in which the bitcoin price fell to USD 42,000 within a short period of time. However, the Bitcoin price was able to recover relatively quickly afterwards and stabilize at the USD 49,000 mark.
The price crash was the result of a cascade of futures liquidations that saw traders lose a total of 58,202 BTC. Only in the crash in May 2021 have there been more liquidations in one day. There are some arguments to suggest that the last Bitcoin crash could have been the last shakeout before the next rally. The current price structure is very similar to that of the previous Bitcoin cycles (2013 & 2017).
Record liquidations in 2021
The last Bitcoin crash to the bottom at USD 42,000 was the result of a cascade of liquidations of futures positions. In a leveraged futures trade, traders borrow capital from the exchange to increase their positions. For example, if the position size is 10x larger than the stake, the trader makes 10x as much profit. If the price drops by 10%, for example, then the trader loses his stake (10 * 10% = 100%) - the position is liquidated.
Due to the liquidations, the on -chain analyst @TXMCtrade published a chart on which you can see changes in the open futures positions from 2021 for every single day.
On December 4, 2021, traders lost 58,202 BTC of capital as their positions were liquidated. December 4th was the day with the second highest number of crypto liquidations in all of Bitcoin history . Only in the crypto crash on May 19, 2021 has more crypto capital been liquidated at once (79,244 BTC).
If we take a closer look at the lower chart of the open futures positions, then one becomes aware of the extent of the Bitcoin crash. In just one day, the total of open futures positions decreased by $ 4.3 billion. This corresponds to a decrease of 20.5% (from 20.9 billion to 16.6 billion).
One of the consequences of such a dramatic event is a drop in Bitcoin futures funding rates. If there are more long positions (leveraged buy positions) than short positions (leveraged sell positions), then the holders of the long positions pay a premium to the holders of the short positions and vice versa. The on-chain analyst @DylanLeClair published a corresponding chart on Twitter. Within the last 4 months (since August 2021) almost exclusively traders who opened a long position had to pay a premium for this - the funding rates were therefore positive.
However, on December 4th, that changed pretty quickly. The funding rate fell to -0.03%. That was the lowest value since July 2021. On that day, the holders of short positions had to pay.
Was the Bitcoin crash the last shakeout before the next rally?
The data shown earlier suggest that the majority of market participants did not expect such a drastic decline in share prices. At the beginning of November, leading crypto analysts assumed that the Bitcoin price could rise to just under USD 100,000 in November or by the end of the year. The market sentiment was clearly bullish at the time. In addition, the Bitcoin price has mostly performed well in the past in November and December.
There are still many arguments that the bull market will continue, such as the theory of lengthening Bitcoin cycles , according to which the Bitcoin price could soar to new record highs in 2022.
The crypto market analyst @ TechDev_52 on Twitter provided further arguments for the continuation of the bull market . He published a chart of the price of the current bull cycle and compared it to the previous two. In all three cases, the Bitcoin price first consolidated for several months below the external 1.61 Fib retracement level (measured from the high point of the previous bull cycle to the low point of the next bull cycle). Thereafter, the BTC price has always broken above the external 1.61-Fib resistance level, whereupon a parabolic price increase to a new all-time high followed.
Interestingly, the Bitcoin price fell to the external 1,272 Fib retracement level every time. This was followed by an impulsive price movement upwards, during which the BTC price broke above the descending (dashed) yellow resistance line. The BTC course then validated this again as support.
The white, horizontal trend line that you can see on all three charts also plays an important role. This is at the level of the high point (or swing high) that the Bitcoin price reached after the breakout above the yellow line. Bitcoin price fell on this line in the last two bull cycles before breaking above the 1.61 external fib retracement level.
Structural differences in Bitcoin cycles
The Bitcoin price has broken below the aforementioned white line in this bull cycle. In addition, the Bitcoin price could not hold above the so-called bull market support band, which represents the moving, exponential 20- and 21-week averages. In the past, falling below the band signaled a change in trend. However, the analyst stated that despite these bearish signals , the Bitcoin price could stay above the 50-week moving average, which already acted as support during the correction phase in July.
Should the (fractal) price structure remain intact - apart from the differences mentioned above - then it could very well be that the last Bitcoin crash is actually the last shakeout before the next Bitcoin rally . However, the Bitcoin price first has to break out of the external 1,618 fib retracement level at USD 61,500 and validate this as support to confirm this theory.
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