Bitcoin extended losses, deepening its December decline and breaching key technical levels. Image Credit: REUTERS/Dado Ruvic/Illustration

New York: Bitcoin extended losses, deepening its December decline and breaching key technical levels.

The token fell as much as 7.2 per cent on Tuesday to trade at $47,321, which is below its 200-day moving average. Ether, the second-largest coin, and the Bloomberg Galaxy Crypto Index were also in the red, with each falling roughly 7 per cent. Smaller tokens such as Solana, Cardano, Polkadot and meme token Dogecoin also lost ground, according to tracker CoinGecko.

The plunge likely accelerated as more than 165,000 traders had their accounts liquidated over the past 24 hours, equal to around $524 million worth of digital assets, according to data from Coinglass, a crypto trading platform.

Retreat from speculation

Investors have retreated from some of the most speculative corners of global markets of late, worried that an ebbing tide of central bank stimulus could spell trouble. Just how exposed Bitcoin and the wider digital-asset universe are to that risk is the subject of heated debate. Meanwhile, with the Federal Reserve seen ready to take action as needed to stem rising prices, Bitcoin’s appeal among those who see it as a potential inflation hedge may be dimmed.

Matt Maley, chief market strategist for Miller Tabak + Co., said it’s strange to see cryptocurrencies selling off into year-end because many have been big winners in 2021 despite recent bouts of turbulence. But institutional investors might be behind this week’s declines, he said.

If these investors got to the party late, “their gains in cryptos are not as large - in fact, some of them probably have losses,” Maley said. “Therefore, they might be paring back their holdings a bit and adding to their exposure” elsewhere, such as equities.

Bitcoin has largely moved in tandem with riskier assets like U.S. stocks this year, though that pattern looks to be breaking down this month. The S&P 500 index of the largest companies is up about 5 per cent so far in December, while Bitcoin has lost some 16 per cent for its worst monthly performance since May. This is the first month since June that their performances have diverged.

“Each new round of volatility seems to support an idea that the asset class is highly speculative,” said Mike Bailey, director of research at FBB Capital Partners.

Adverse technicals

Technical studies suggest something of a tipping point for Bitcoin following a retreat from an all-time high of almost $69,000 in November, which has trimmed its year-to-date advance to almost 70 per cent from more than 100 per cent at the peak.

For instance, a study using Bollinger bands - a popular way of looking at volatility - shows the virtual coin touched the upper band in the past week but failed to close above it. For some, that suggests Bitcoin may face difficulty making gains in the short term.

Katie Stockton, founder and managing partner of Fairlead Strategies, an independent research firm focused on technical analysis, says Bitcoin’s next level of support is around $44,200, based on a Fibonacci retracement level.

The $50,000 level isn’t as important in her view “but it does hold psychological significance,” she said. “Bitcoin is in a consolidation phase, and seems to be reacting to the short-term overbought condition.”

Victoria Greene, founding partner and chief investment officer at G Squared Private Wealth, says she advises clients to be patient and to be aware of volatility.

“It’s still a fringe investment because I don’t think people really understand what they want it to do - is it offsetting inflation, is it holding value, is it an investment you just want it to go up, or is it an actual currency you want to use to buy things?,” she said by phone.