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Bitcoin’s Momentum Stumbles As Sudden 7.5% Plunge Towards $40,000 Tests 2023 Rally

Bitcoin experienced another episode of its well-known volatility as it sharply dropped towards $40,000 amid a broader crypto market decline. The leading cryptocurrency plunged by 7.5%, hitting $40,521, before recovering slightly to trade 4% lower at $41,238 as of 3:12 am in London on Monday.

This downward movement wasn’t limited to Bitcoin alone; smaller tokens such as Ether, XRP, Polkadot, and Avalanche also witnessed declines. The overall sentiment was reflected in a 4% dip in a gauge measuring the top 100 digital assets, marking the most significant decrease since November 22.

Bitcoin’s impressive performance throughout the year, fueled by expectations of regulatory approval for the first US spot Bitcoin exchange-traded funds and speculation about a Federal Reserve interest rate cut in 2024, seemed to be taking a hiatus.

Richard Galvin, co-founder at Digital Asset Capital Management in Sydney, attributed the current fall to a market deleveraging rather than any specific fundamental news catalyst, noting a notable rise in market leverage.

Data from Coinglass indicated that approximately $312 million worth of crypto trading positions, betting on higher prices, were liquidated on Monday by 7:15 a.m. in London. This marked the highest such tally since at least mid-September.

Investors On Edge as Federal Reserve Meeting and US Inflation Data Pose Challenges

Investors anticipate key events later in the week, including US inflation data and the Federal Reserve’s final policy meeting of 2023. These developments have the potential to challenge the optimistic outlook that has driven aggressive bets on future interest rate cuts. As global stocks and US equity futures showed signs of wavering, a cautious sentiment was evident, reflected in a slight uptick in a dollar gauge.

Market analyst Tony Sycamore from IG Australia Pty Ltd suggested that some profit-taking was expected, expressing the belief that declines toward the $37,500 to $40,000 range would find strong support from dip buyers.

While Bitcoin has surged more than 150% year-to-date, leading a broader recovery in digital asset prices from the 2022 $1.5 trillion rout, it remains notably below its pandemic-era peak of nearly $69,000 set just over two years ago.

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