Bitcoin Slips 7% Near $40K: Experts Predict Brief Pullback

• Bitcoin Experiences Over 7% Drop
• Cryptocurrency Market Overview
• Ethereum and Other Cryptocurrencies Also Decline
• Some Altcoins Defy the Trend
• Leverage and Market Analysis
• Looking Forward

Bitcoin Experiences Over 7% Drop

Bitcoin$42,260 -0.64% experienced a significant decline of more than 7% today, marking the steepest daily drop since August as the cryptocurrency market appears to be cooling down. Despite this, cryptocurrency prices may surge to unprecedented highs by the end of the year. LMAX market strategists believe this could happen as the current setback purges unnecessary leverage and resets the market.

Cryptocurrency Market Overview

Bitcoin (BTC), in the previous roughly 24 hours, has faced its most severe daily drop in nearly four months, reminding traders of the cryptocurrency's sporadic steep bull market corrections. In a matter of minutes on Sunday evening, BTC plummeted to near $40,500 from approximately $43,800, a phenomenon known as a flash crash. While prices quickly rallied to $42,400, they began sliding again during U.S. afternoon hours to as low as $40,200.

Ethereum and Other Cryptocurrencies Also Decline

Ethereum$2,315 -2.42% (ETH), the second largest cryptocurrency, also experienced a similar drop of over 7% within the same period, falling to below $2,200. Most other cryptocurrencies also reported significant drops with Ripple-linked (XRP$0.620 -1.68%), dogecoin (DOGE), Chainlink$15.6 -4.61%'s native tokens (LINK), and Cardano (ADA) experiencing losses ranging from 8% to 12% in a day.

Some Altcoins Defy the Trend

In defiance of the overall downward trend, some altcoins recorded gains. Tokens of Avalanche (AVAX), Injective$35.9 1.60% (INJ), and Optimism$3.67 -1.41% (OP) were among the very few to make gains. However, the Crypto Market Index (CMI), which monitors a market capitalization-weighted basket of nearly 200 digital assets, also fell by over 7%, highlighting the widespread declines.

Leverage and Market Analysis

Sharp drawdowns have been a common feature of every previous bitcoin bull cycle. The recent correction was expected and necessary to eliminate excessive leverage and foster more sustainable price action, says bitcoin-focused market analyst Will Clemente. This decline obliterated over $520 million of leveraged trading positions on the crypto derivatives market, primarily long bets on rising prices, according to CoinGlass data.

Looking Forward

Market strategist Joel Kruger at LMAX Group noted that the cascading liquidations of leveraged longs amplified the current sell-off as traders confronted margin calls. Additionally, a stronger U.S. dollar may have contributed to the weakness in the crypto market. Nevertheless, he believes this pullback will be short-lived and that asset prices could continue to rally.

We suspect these dips in bitcoin and ether will be eaten up relatively quickly, in favor of higher lows and bullish continuations to new yearly highs," Kruger said. "The outlook for crypto assets into the year-end remains bright.

Edited by Jonathan Stoker