Bitcoin (BTC) Price Falls Nearly $40,000, Sharpest Drop Since August; LINK, ADA, XRP lead to crypto losses

Bitcoin (BTC) suffered its biggest daily decline in nearly four months over the past 24 hours or so, prompting a massive leverage wipeout as traders were reminded of the crypto market's occasionally sharp corrections.

In a matter of minutes, BTC plunged from around $43,800 to almost $40,500 on Sunday evening in what could be described as a “flash crash.” Prices quickly recovered to $42,400 but then began to slide again during the US afternoon hours, reaching as high as $40,200, a level they broke on the way up a week ago.

At press time, the largest cryptocurrency was back above $41,000, still down nearly 7% over the past 24 hours but on track for its worst daily decline since BTC fell below $25,000 US dollar on August 17th.

Ether (ETH), the second-largest cryptocurrency, also fell over 7% to below $2,200 in the same period.

Most other cryptocurrencies also suffered sharp declines, with Ripple-Linked (XRP), Dogecoin (DOGE), native tokens of Chainlink (LINK) and Cardano (ADA) suffering intraday losses of 8% to 12%.

Some altcoins bucked the trend, with the tokens Avalanche (AVAX), Injective (INJ) and Optimism (OP) being among the very few winners.

The CoinDesk Market Index (CMI), which tracks a market-cap-weighted basket of nearly 200 digital assets, also fell over 7%, highlighting sharp declines across the board.

Sharp declines have been part of every previous Bitcoin bull cycle, but have been rarely seen in recent weeks as BTC has risen almost continuously since October 1 from $27,000 to almost $45,000.

The current correction should not have been a surprise and should have happened at some point, said Bitcoin-focused market analyst Will Clemente. These setbacks are necessary to reduce excessive leverage for more sustainable price developments, he added.

“BTC has almost doubled in two months with no setbacks, a correction is not that surprising,” Clemente wrote. “Corrections eliminate 'weak hands' and leverage, creating a stronger foundation for eventual upside.”

The decline wiped out over $520 million in leveraged trading positions in the crypto derivatives market, mostly long positions betting on rising prices, data from CoinGlass shows. According to the company, this was the highest number of daily liquidations in at least three months.

Liquidations are the forcible closing of a leveraged trading position, usually because the trader's margin to cover the open position has been used up. Large liquidation events often mark a local high or low in prices.

Joel Kruger, market strategist at LMAX Group, noted that the cascading liquidation of leveraged long positions amplified the current selloff as traders faced margin calls. Additionally, a stronger US dollar may have contributed to the weakness of the crypto market.

He said the pullback helped cryptocurrencies fall from overbought levels and the asset prices could continue to rise to new highs.

“We suspect that these dips in Bitcoin and Ether will be eroded fairly quickly in favor of higher lows and bullish continuations to new yearly highs,” Kruger said in an email statement. “The outlook for crypto assets through the end of the year remains positive.”

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