Tuesday became a "black" day for the cryptocurrency market. In just a few minutes, Bitcoin traders liquidated roughly $1 billion in leveraged positions due to a sharp collapse in the BTC rate, which caused the world's most popular cryptocurrency to correct from $64,000 to $58,500. Although by the end of the day, Bitcoin managed to recover above $60,000, it had lost 10% of its value at the time.
Such dynamics may be the first sign that the recent bullish rally in the cryptocurrency market is fizzling out, and this local decline signals an imminent trend reversal. This scenario is also supported by the outstanding growth recorded by several top digital tokens over the past month. From the beginning of October to mid-November, Bitcoin rose more than 50%, reaching a record high at about $69,000. Over the past 12 months, BTC has added more than 250% in value. Ethereum, which gained popularity amid the hype around Ethereum's DeFi network, added more than 60% since the beginning of October and traded above $4,850 last week. Over the past 12 months, the ETH price has increased by more than 800%.
In addition to technical factors, there were also fundamental reasons for this correction. On Monday, US President Joe Biden signed a $1.2 trillion infrastructure bill into law, including additional regulation of the cryptocurrency industry. The document contains an expanded definition of the term "broker." It will now include miners, software developers, node operators, liquidity providers in DeFi protocols, and other market participants who will be obliged to report cryptocurrency transactions of more than $10 thousand to the US tax service. Interestingly, at the stage of discussions, several members of Congress attempted to make amendments to the bill before it passed into law and clarify the wording related to cryptocurrency. Still, these amendments didn't receive enough support.
A decrease in the crypto market capitalization was also driven by the general deterioration in traders' sentiment against the backdrop of shocking US inflation data. The consumer price index surged 6.2% from a year ago in October, the highest level in 30 years. It's not surprising that in such conditions, market participants decided to redirect their investments in favor of safe-haven assets such as gold and the dollar. Traders believe that to prevent inflation from spiraling higher. The Federal Reserve may raise its key interest rate. Let us recall that the prospect of monetary policy tightening in the US remains one of the main threats to all risky assets, including cryptocurrency. That being said, in the current environment, we recommend refraining from building up "long" positions and considering shorting BTC/USD with the target at $52,000.