Bitcoin’s 2023 rally fades during brief 7.5% decline towards $40,000

(Bloomberg) — Bitcoin posted its biggest decline in nearly four months as traders moved to take profits after rising more than 150% this year, triggering a massive liquidation of bullish bets.

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The largest token fell as much as 7.5% on Monday, the largest intraday decline since August 18. It pared some losses to trade 4.6% lower at $41,878 at 9:57 a.m. in New York. Most major cryptocurrencies fell, with the index of the 100 largest digital assets falling by the most since November 14.

“Market leverage has risen significantly,” said Richard Galvin, Sydney-based co-founder of Digital Asset Capital Management. “This fall looks more like deleveraging in the market than any fundamental news catalyst.”

Coinglass data shows that nearly $405 million worth of cryptocurrency trading positions betting on rising prices were liquidated on December 11 — the highest number since at least mid-September.

Bitcoin has been on a tear this year over expectations that regulators will greenlight the first U.S. exchange-traded funds to invest directly in the token, expanding the potential base of cryptocurrency investors. Bets that the Federal Reserve will cut interest rates in 2024 also helped fuel the rally.

Waiting for the Fed

Investors are bracing this week for US inflation data and the Fed’s final policy meeting for 2023, both of which could test strong bets on interest rate cuts. Global stocks were mixed on Monday as the dollar gauge rose, a sign of cautious sentiment.

“It makes sense to see some profit taking,” said Tony Sycamore, market analyst at IG Australia Pty, and he expects declines towards the $37,500 to $40,000 range to be “well supported” by bearish buyers.

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Bitcoin has jumped more than 150% year to date, energizing a broader rebound in digital asset prices from $1.5 trillion in 2022. The token remains well short of its pandemic-era record of around $69,000 which It was recorded just over two years ago.

A “less hawkish” message from the Fed would likely lead to a “retest” of Bitcoin’s recent rally near $45,000, according to Carolyn Morrone, co-founder of Orbit Markets.

-With assistance from Siddhartha Shukla.

(Adds daily comparison in second paragraph.)

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