Bitcoin’s Price Swiftly Recovers Above $100,000 After Flash Crash
After experiencing a flash crash that saw its price plummet to $90,500 on December 5, Bitcoin has quickly recovered above the $100,000 mark. This sudden downturn was only short-lived, with the cryptocurrency rallying by 4.57% on the daily chart, maintaining a bullish position above each exponential moving average (EMA) level on the four-hour chart.
Bitcoin’s Rapid Decline and Liquidation Event
The flash crash occurred within one hour, during which the candle high and low values were $99,105 and $90,500, respectively. This brief period saw Bitcoin liquidations cross the $400 million mark, identified as the largest liquidation event since 2021.
However, despite this significant drop in price, there was a major positive takeaway from the liquidation event – Bitcoin’s open interest-weighted funding rate underwent a reset, dropping from 0.09% on December 4 to 0.01% on December 6.
The Funding Rate Reset and its Implications
Byzantine General, a Bitcoin futures analyst, stated that the funding rate reset is a positive sign for Bitcoin. The anonymous trader highlighted the sharp decline in the funding rate, decreased aggregated open interest to the $95,000 level, and a drop in the aggregated spot premium. All these factors indicate a relatively deleveraged futures market compared to a few days back.
As highlighted by Byzantine General:
"If BTC just continues pumping after that liq cascade, that would be insane, and then there’s truly nothing that can stop this train."
Is This Normal Behavior for Bitcoin?
After the price volatility on December 5, Bitcoin’s one-day chart saw the formation of a bearish spinning top candlestick pattern. A spinning top indicates a period of indecisiveness for the asset as both buyers and sellers push prices in opposite directions.
Interestingly, this pattern has been observed at previous important milestones for Bitcoin. Charles Edwards, the founder of Capriole Fund, highlighted that Bitcoin acted similarly when it crossed $1,000 and $10,000, stating, "This is normal" for BTC.
A Similar Pattern Observed in Previous Milestones
As illustrated in the chart, a similar bearish spinning top candle pattern was observed when BTC crossed $10,000 in December 2017 and witnessed severe price fluctuations after it crossed $1,000.
On both occasions, the bearish volatility was short-term, and the price continued to move upward after these milestone targets were attained. Thus, bullish market tendencies are expected to repeat this time as well.
Fibonacci Extensions and RSI Analysis
Based on Fibonacci extensions, the immediate target for Bitcoin remains at $115,000, another 15% uptick from the $100,000 level. With the relative strength index (RSI) coiling under the overbought region, an aggressive breakout can take prices as high as $124,500, which falls three times higher with respect to the Fibonacci extensions’ swing low value of $90,500.
Conclusion
Despite experiencing a flash crash and significant liquidation event, Bitcoin’s price has quickly recovered above $100,000. The funding rate reset is a positive sign for the cryptocurrency, indicating a relatively deleveraged futures market compared to a few days back.
With bullish market tendencies expected to repeat this time as well, investors should remain optimistic about Bitcoin’s future prospects. Based on Fibonacci extensions and RSI analysis, the immediate target for Bitcoin remains at $115,000, with an aggressive breakout potentially taking prices as high as $124,500.
Recommendations
Every investment and trading move involves risk, and readers should conduct their own research when making a decision. However, based on the current market trends and technical indicators, investors may consider the following:
- Invest in Bitcoin to take advantage of its potential upside.
- Keep an eye on the funding rate reset and its implications for the cryptocurrency’s price movement.
- Monitor the RSI coiling under the overbought region and be prepared for a potential aggressive breakout.
Disclaimer
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
