On December 15, Bitcoin dropped to around $85,000, marking an extension of its recent decline caused by various global factors, including macroeconomic risks, unwinding leverage, and low liquidity. This sudden decrease resulted in a loss exceeding $100 billion in the cryptocurrency market cap within just a few days, leaving many to ponder whether the downward trend has reached its end.
Several intertwined reasons contributed to Bitcoin’s plummet, suggesting that downward pressure may persist in the short term.
A major contributor came from Japan, where the anticipated interest rate hike by the Bank of Japan brought market movement. This adjustment could elevate Japan’s policy rates to levels unseen in decades.
Japan’s influence on global risk markets has been significant, particularly through its yen carry trade, which allows investors to borrow at low rates to purchase riskier assets. Consequently, any rise in Japanese interest rates would lead to a halt in this trend, prompting investors to sell these risk assets in order to repay yen-denominated debts.
Whenever the Bank of Japan has previously hiked rates, Bitcoin has historically experienced sharp drops ranging from 20% to 30% soon after. Traders appeared to have anticipated this pattern in advance, resulting in Bitcoin’s price decline before the actual decision.
Simultaneously, traders seemed to be withdrawing from risk due to a saturated market alongside troubling US macroeconomic data, including inflation and labor statistics.
While the Fed has slashed interest rates, there are signals of caution regarding how quickly further reductions will take place. This uncertainty notably affects Bitcoin, as it’s increasingly being treated as a liquidity-sensitive macro asset rather than a standalone hedge.
With inflation rates still high and employment figures predicted to weaken, it seems the markets are grappling with what the Fed’s next steps might be. This indecision has dampened speculative interest, leading some short-term traders to exit.
As such, Bitcoin seemed to falter just as it neared a significant technical benchmark.
When it dipped below the $90,000 mark, forced selling ensued.
Data indicated over $200 million in leveraged long positions got liquidated in mere hours, especially since many long traders had increased their bullish positions following the Fed’s earlier rate cut.
This drop triggered automatic liquidations—selling off Bitcoin to absorb losses, creating a cascading effect that further depressed prices.
Such mechanical factors account for the suddenness of this movement, which was more like a rapid plunge rather than a gradual decline.
The timing of the sell-off exacerbated the situation further.
Bitcoin fell during a low liquidity period over the weekend; in such times, even minor sell orders can provoke substantial price swings.
Larger holders and derivatives markets reduced their exposure, which heightened the already volatile environment. As a result, Bitcoin’s value dropped from the low $90,000s to $85,000 swiftly.
Weekend downturns typically appear severe, even if the broader context remains largely unchanged.
The pressure on market structure was further intensified by significant sell-offs from Wintermute, one of the largest market makers in the cryptocurrency scene.
During this downturn, it emerged that Wintermute was reportedly offloading massive volumes of Bitcoin, estimated to exceed $1.5 billion, across several exchanges. This action seemed aimed at rebalancing risks based on recent market volatility and losses in derivatives.
Since Wintermute serves as a liquidity provider in both spot and derivatives markets, its activity notably influenced the sell-off.
The timing of Wintermute’s sales was crucial, happening during a period of low liquidity which amplified the downturn and hastened Bitcoin’s fall to $85,000.
Whether Bitcoin will continue to drop further might hinge more on broader macroeconomic developments than on cryptocurrency-specific news.
Should the Bank of Japan enforce a rate hike and global yields increase, Bitcoin may remain under downward pressure as carry trades continue to unwind. A stronger yen would further exacerbate this strain.
Conversely, if the market has sufficiently priced in this situation and US data weakens enough to reignite hopes for a rate cut, Bitcoin might stabilize once this liquidation frenzy cools off.
For now, the decline observed on December 15 seems to represent a macroeconomic reset rather than a fundamental failure within the cryptocurrency market, although volatility appears set to linger for a while.
