On the 16th of December, Bitcoin [BTC] dropped 4.5%, falling to $85.7k in the early hours of trading.
At press time, the Asian equities moved lower, with the Nikkei 225 falling 784 points, or 1.56%. This decline also weighed on the cryptocurrency market, where the total capitalization dropped 4.4% before staging a minor rebound over the past few hours.
In the short term, the $85.7k level was defended, and Bitcoin managed to bounce higher to $86.5k. However, the market remains fearful and volatile. CoinGlass data revealed that the past 24 hours saw $652 million liquidated in the crypto.
Surprisingly, Ethereum [ETH] saw more liquidations than Bitcoin. It was $233.5 million ($205.1 million in longs) for Ethereum liquidations compared to Bitcoin’s $184.8 million ($168.8 million in longs).
In a post on CryptoQuant Insights, XWIN Research Japan noted that liquidations were not primarily driven by spot selling. Rather, the build-up of high-leverage liquidations underneath key short-term support levels might be amplifying the drop.
Liquidated long positions are forced to sell, creating taker sell orders that can trigger more liquidations, forming a cascade. They argued that this slide was a healthy reset, flushing out extra leverage and setting conditions up for a stable, spot-driven recovery.
AMBCrypto found that traders should expect more drawdown in the near term.
Why BTC prices might see more volatility
Since the 7th of December, the BTC Open Interest (OI) has been rising. Although it dipped in recent hours, the overall trend has remained upward throughout the past week.
Similarly, the Estimated Leverage Ratio (ELR) metric also saw a sharp uptick from the 10th of December. The metric measures the exchange’s OI divided by its coin reserve.
The rapid uptick in ELR suggested more OI, or fewer BTC in Exchange Reserves, or both.
AMBCrypto analyzed the 7‐day Moving Average of Exchange Netflows and confirmed that, on average, Bitcoin has been flowing out of exchanges over the past month. This trend helps explain the behavior of the ELR.
Meanwhile, rising OI despite falling price points to increased short‐selling activity. It also raises the risk of sharp liquidity hunts in both directions, adding to potential volatility in the days ahead.
Concerns remain that the $84k local support may not hold, driven not only by volatility fears but by broader market pressures.
On-chain analyst Axel Adler noted that the market phase index remained in the 0.38 territory. This reads as a “preservation of the transitional regime“. The selling pressure has not intensified, but there has been no sustainable recovery either.
The indicator must pick up over the 0.43 level to signal market strength. Until then, traders and investors can maintain a bearish bias.
Final Thoughts
- The Asia session saw equities slip lower on the back of investor fears, which also saw a Bitcoin drop of close to 4.5%.
- The BTC market remained in control of the sellers, and a sustainable recovery was not underway.
