Big December Move for Bitcoin? Insights from BitMine’s Tom Lee and On-Chain Data

As December approaches, Bitcoin might be poised for a significant movement as liquidity conditions tighten and on-chain metrics shift. BitMine Chairman Tom Lee notes that the market has been "limping" since the liquidation shock on October 10, but he believes the current setup could lead to a major surge before the year ends.

Key Takeaways

Current Market Landscape: Bitcoin's price has dropped nearly 30% from its peak of $126,000 in early October, heavily influenced by liquidity and market-maker conditions.
Market Recovery Signals: Recent metrics show a transition from aggressive selling to a more balanced market, indicating potential improvements.
Borrowing Trends: Many crypto users prefer borrowing against Bitcoin rather than selling, which may shield the market from immediate selling pressure but also risks added fragility.
Potential for December Rally: Tom Lee remains optimistic about a strong rally in December, influenced by possible dovish shifts from the Federal Reserve.

Understanding Liquidity Damage in the Market

Tom Lee shared insights with CNBC, explaining that the significant events of October have severely impacted the balance sheets of market makers. Often referred to as the "central banks" of the cryptocurrency realm, these entities are crucial in providing depth and managing spread and inventory. When their balance sheets contract, it typically leads to a reduction of liquidity that can last for weeks.

Bitcoin's performance since early October has reflected this, with the cryptocurrency experiencing a nearly 30% decline since it peaked at $126,000. Particularly concerning is that November has recorded one of the weakest monthly performances for both Bitcoin prices and ETF inflows in years. Following the liquidation wave that wiped out approximately $19 billion in leveraged positions, market makers reduced their risk exposure, resulting in significantly thinner order-book depth across major exchanges. This situation often results in amplified downside moves when market stress occurs, especially for Bitcoin and Ethereum.

Despite these challenges, Lee remains hopeful for a robust rally in December, suggesting that the Federal Reserve may take a more dovish stance, which historically can trigger substantial movements in Bitcoin. “Bitcoin makes its best moves in 10 days every year, and I believe that some of these days are still to come before the year closes out,” Lee stated.

Shifts in On-Chain Metrics: Sellers Losing Control

On-chain metrics indicate a shift in market behavior, as Bitcoin’s 90-day Spot Taker CVD (Cumulative Volume Delta) transitions from a state of dominant selling to a more neutral position. This specific metric monitors aggressive market orders on spot exchanges and has shown a long period of selling pressure indicated by red bars from early September to mid-November.

The recent move to a neutral stance indicates that this aggressive selling phase might be exhausting, although it does not yet show strong buyer dominance. Instead, the market has entered a more balanced phase, reflecting characteristics typically seen in late-cycle bear markets. While prices are still well below their October values, the lack of persistent selling pressure points to increased stability. This shift aligns with the broader reset of leverage in the futures markets, where funding rates have nearly returned to zero.

Borrowing Preferences: Strong Hands But Frail Leverage

According to data from CryptoQuant, Nexo users demonstrate a preference for borrowing against Bitcoin rather than selling it. Bitcoin represents 53% to 57% of all collateral on the Nexo platform, and this ratio has remained stable despite recent price declines. This behavior indicates that users are not keen to sell their Bitcoin but instead leverage it when they require liquidity.

However, this reliance on Bitcoin as collateral can introduce vulnerabilities. If Bitcoin’s price continues to decline, these leveraged positions may face liquidation, creating a risk of forced sell-offs that could lead to pronounced volatility. This situation highlights the fragility of the market rather than indicating early bullish strength.

A Market in Transition: Between Exhaustion and Low Liquidity

The current market structure reveals that we are witnessing a transitional phase rather than a clear reversal. ETF outflows, damaged liquidity, and ongoing macroeconomic uncertainties continue to exert pressure on Bitcoin prices. Nevertheless, the recent cooling of on-chain selling, coupled with structural holders maintaining their positions, suggests a different dynamic is emerging.

This combination creates a situation where small market catalysts could lead to significant price fluctuations. Tom Lee emphasizes the likelihood of an upcoming year-end rally buoyed by a dovish pivot from the Federal Reserve. Such a pivot could impact thin order books positively and potentially spur a recovery. Conversely, additional macro shocks could lead to renewed deleveraging in the market.

In conclusion, as we move into December, both liquidity conditions and on-chain signals suggest that a substantial movement in Bitcoin’s price is imminent. Ultimately, the direction of this movement will depend more on macroeconomic signals and ETF flows than on market sentiment alone.