Bitcoin's Wild Night: 90,000 Liquidations, $241 Million Vanished, Unpacking the Market Volatility

Bitcoin's Wild Night: 90,000 Liquidations, $241 Million Vanished, Unpacking the Market VolatilityIn the early hours of December 28th, the Bitcoin market experienced a dramatic rollercoaster ride. Bitcoin's price plummeted, briefly approaching $93,000, before quickly rebounding to above $94,000

Bitcoin's Wild Night: 90,000 Liquidations, $241 Million Vanished, Unpacking the Market Volatility

In the early hours of December 28th, the Bitcoin market experienced a dramatic rollercoaster ride. Bitcoin's price plummeted, briefly approaching $93,000, before quickly rebounding to above $94,000. This sharp volatility led to over 92,500 liquidations globally, totaling a staggering $241 million, capturing widespread market attention. Coinglass data starkly reflects these alarming figures, raising questions about the underlying causes. This article delves into the complex factors contributing to this volatile price swing, examining aspects such as massive options expiry, Bitcoin halving anticipation, and large-scale purchases by tech companies.

Massive Options Expiry Triggers Market Turmoil

December 27th witnessed the expiry of $14.27 billion worth of Bitcoin options, a significant factor contributing to the market's dramatic volatility. Options with a $90,000 strike price held the largest open interest, presenting considerable risk. Data from Deribit, holding a 72% share of the Bitcoin options market, revealed $8.45 billion in open interest for call options and $5.82 billion for put options. This substantial open interest created inherent market risk.

More notably, Deribit experienced a record-breaking $43 billion in options expiry on Friday, encompassing $13.95 billion in Bitcoin options and $3.77 billion in Ethereum options. This massive expiry inevitably amplified market volatility. Industry analysts suggest that market makers, to cover their hedging positions and short Bitcoin positions, had to take action, directly causing the unusual market fluctuations on Friday.

The "in-the-money" and "out-of-the-money" status of options also significantly impacted the market. If Bitcoin's price remained above $95,000, the $90,000 strike price call options would remain "in-the-money," potentially leading holders to exercise their options, creating buying pressure. To cover their exposure, market makers might need to buy Bitcoin in the spot or futures market, temporarily pushing prices upward. Conversely, if Bitcoin fell below $90,000, these call options would become "out-of-the-money," potentially losing value. Simultaneously, put option holders might exercise their options, increasing selling pressure and further exacerbating Bitcoin's downward momentum. This complex market mechanism rendered Bitcoin's price highly uncertain on the options expiry date.

Bitcoin Halving Expectations Push Prices, Reserve Changes Spark Market Attention

Bitcoin's price fluctuations are also closely tied to market expectations surrounding the "Bitcoin halving." Crypto analysts typically categorize Bitcoin's price performance into four-year cycles, each encompassing breakthrough, hype, correction, and accumulation phases. These cycles are primarily based on the Bitcoin halving schedule, a mechanism controlling the cryptocurrency's supply by reducing Bitcoin mining rewards to control inflation. Halvings occur roughly every four years, with the most recent one in April this year.

Research by Vetle Lunde, head of research at K33, indicates that based on data from the past three cycles, the average duration from the first all-time high to the last all-time high in each cycle is 318 days. Considering Bitcoin reached its all-time high on March 5th this year, if the average duration of previous cycles serves as a reference, investors might see a new, final peak for this cycle around January 17th, 2025. This expectation undoubtedly influenced market sentiment.

Concurrently, the decreasing Bitcoin reserves on Binance, falling to their lowest level since January, fueled speculation about a potential significant Bitcoin price surge. Earlier this month, as Binance's reserves dropped to around 564,000, Bitcoin's price briefly surpassed $100,000 before the reserves started to slightly increase and the price declined. According to research by Darkfrost, a CryptoQuant analyst, Binance's Bitcoin reserves have fallen to 570,000, a trend mirroring the situation earlier this year when Bitcoin's price soared to nearly $70,000. Darkfrost suggests that the reduced Binance reserves indicate investor confidence in Bitcoin's long-term prospects, choosing to withdraw their Bitcoin from the exchange rather than leaving it for short-term sales. This suggests a potential upcoming upward trend.

Tech Companies' Large-Scale Purchases Provide Support for Bitcoin Price

It's noteworthy that during Bitcoin's price correction, several tech companies actively bought Bitcoin, providing additional support. On December 26th, KULR Technology Group announced a $21 million Bitcoin purchase and plans to allocate 90% of its cash to Bitcoin, boosting its stock price by over 40%. This demonstrates the sustained confidence some institutional investors have in Bitcoin's long-term value.

On December 23rd, MicroStrategy Inc. (MSTR) also announced plans to expand its Bitcoin acquisition program. The company holds over $40 billion worth of Bitcoin, making it the largest Bitcoin holder among publicly traded companies. These tech giants' continued purchases undoubtedly provided support for Bitcoin's price and reflect the ongoing market interest in digital currencies.

Conclusion: Bitcoin Market Volatility Remains Significant

In summary, Bitcoin's sharp price volatility resulted from a confluence of factors, including massive options expiry, Bitcoin halving anticipation, exchange reserve changes, and large-scale purchases by tech companies. While Bitcoin's price may experience short-term fluctuations, its value as a decentralized digital currency remains a focus in the long term. However, investors need to acknowledge the high volatility of the Bitcoin market, make cautious decisions, and avoid blindly following trends. The market's future direction remains uncertain, requiring continuous monitoring of market dynamics and rational analysis to better navigate opportunities and mitigate risks.