ver the past eight weeks, Bitcoin saw consecutive weekly green candles closing in bullish fashion. This type of extended bull momentum last occurred back in late 2020 ahead of BTC’s surge to almost $70k the following year.
However, bull runs rarely move up in a straight line without at least minor pullbacks or consolidations.
After touching weekly closing highs just above $43k, BTC saw increasing selling pressure that ultimately led to a break below the pivotal $42k support level on December 11th.
This level had held firm after multiple retests, but a surge in long liquidations exacerbated the downward move. In just a few hours, over $150 million worth of long positions were liquidated on major exchanges like Binance and FTX, widening price volatility on the downside.
Liquidations Accelerate Declines
Aggressive leverage-based trading played a big part in the breakdown of the $42k zone. As prices dipped lower, reaching a low of just under $41k, automated liquidation triggers sold off long positions on margin.
This amplified selling caused further dipping in BTC’s price, dragging it decisively below support.
Total long liquidations across the cryptocurrency space spiked to over $266 million within a short time window. The excess supply pressure weighed heavily on markets already under downward pressure.
Along with BTC, other major coins like Ethereum, BNB, and others saw significant pullbacks of 5-10% on the day.
Such massive leverage-fueled deleveraging created a cascading effect that overshot foundations. But liquidity has since improved as markets retraced upwards, finding early support at the $41k mark once more.
A stabilization is now underway after aggressive long positions were cleared out.
Next Major Target - $40k Support Looms Large
With the primary $42k support zone now decisively breached, traders have shifted their sights lower to the next fibonacci level at $40,000. Breaking below this level could see an acceleration of selling pressure towards the lower $30k region not seen since summer 2022.
On the other hand, a successful defense of $40k would imply the current pullback has further to run before resuming prior uptrends.
Technical indicators on shorter time frames like the daily show Bitcoin’s RSI trending into oversold regions last seen in mid-November after the FTX collapse. The MACD also triggered sell signals on continued momentum to the downside.
Both point to potential for relief bounces if lows are found short of $40k. However, longer-term weekly charts still show room to fall further within the context of a wider correction.
Volatility to Continue with Upside Potential
With extreme volatility engulfing cryptocurrency markets, the coming week presents opportunities for both longs and shorts playing the range. BTC’s breach of its former support opens the path to test lower levels between $39-41k.
Aggressive leverage longs will want to see a daily close back above $42k to signal the decline has paused.
However, once the current shakeout of overextended positions completes, many analysts foresee an environment where Bitcoin could scale new local highs above $50k - even surpassing last year’s rally towards $60k.
Much will depend on stability in liquidity and absence of further negative macro newsflows. Traders are advised to manage risk closely amid heightened volatility.