Why Bitcoin, Ethereum and Dogecoin collapsed after Christmas

A so-called Santa Claus rally at the end of a financial year is a phenomenon that many in the crypto world hope for. So far, the 24-hour movements have been observed Bitcoin (CRYPTO:BTC), Ethereum (CRYPTO:ETH) And Dogecoin (CRYPTO: DOGE) suggest that such a year-end rally may take some time to materialize, or may not materialize at all. These top cryptocurrencies are down 3.6%, 4.6%, and 5.7%, respectively, in the last 24 hours as of 2:30 p.m. ET.

Holidays often see very low trading volumes in stocks and other assets, and a similar phenomenon occurs in the cryptocurrency world. Still, today’s selling pressure was notable, pushing Bitcoin below the key $100,000 threshold once again, with Ethereum continuing to hover around $3,300 and Dogecoin trading at around $0.31.

Let’s examine what’s driving today’s price movements in these top digital assets.

With a very low trading volume, one cannot expect much volatility. That was the case with stocks today.

However, some interesting comments about the possibility that higher interest rates are now starting to negatively impact risk assets (including cryptocurrencies) have caused some investors to rethink their fundamental investment thesis regarding this asset class. The question for Bitcoin holders is whether this asset is a store of value (like digital gold) or more of a risk asset. I think the jury is still out on this issue as some investors clearly view higher interest rates as having a negative impact on capital flows into more speculative or risky assets and instead move capital into safer assets at year-end.

From a speculative and trading perspective, it also appears that long derivatives contracts are seeing strong liquidation activity, suggesting leveraged bets on these three tokens in particular that are rising in a short period of time are being unwound. The impact of such a large amount of leverage within the crypto ecosystem can be large on the way up, but this volatility can prove to be a double-edged sword, as large downward price swings are possible even on days with relatively low trading volume.

As the dollar continues to be very strong and capital from most asset classes (including gold) has continued to flow into money market funds in recent weeks, it is quite possible that Santa Claus will want to give all crypto investors a lump of coal next week. We’ll see.

I learned that it is impossible to predict with any degree of certainty where a particular asset class will go in the short term. However, for most assets, the long-term trend is upward. And even though crypto as a sector has only existed for about 15 years, you only need to look at a long-term chart of a token like Bitcoin to understand that compounding can take a very, very long time.

The story continues