Bitcoin dropped to $85,000 on December 15, deepening its recent decline. With global macro risks, the unwinding of leverage, and low liquidity overlapping, the pace of movement accelerated. This sharp decline wiped out more than $100 billion from the total cryptocurrency market value in just a few days. Now all eyes are on whether the wave of selling has come to an end.
Although it may seem like there is no reason at all, five fundamental pressures are emerging that are pulling Bitcoin down. These dynamics could lead to continued price pressure in the near term.
Concerns about the Bank of Japan's interest rate hike led to a reduction in global risk.
The most significant development on the macro side came from Japan. There had been positioning in the markets for the long-awaited interest rate hike by the Bank of Japan. This hike will bring the policy rate to a level not seen in Japan for decades.
Even a small interest rate hike matters because Japan has been supporting risky assets worldwide through yen carry trades for a long time.
For years, investors have been borrowing yen at low interest rates and turning to riskier assets like stocks or cryptocurrencies. As interest rates rise, these positions begin to close. Investors are selling their risky assets to pay off their yen debts.
Bitcoin had also reacted sharply to previous interest rate hikes by the Bank of Japan. In the last three instances, BTC lost between 20% and 30% of its value within weeks after the decision. Traders began to price this historical price movement before the decision came, leading to a preemptive drop in Bitcoin.
US Economic Data Reintroduced Policy Uncertainty
At the same time, traders reduced their risk appetite ahead of a busy macro data calendar from the US. Possible inflation data and employment figures are being priced in.
The US Federal Reserve (Fed) recently cut interest rates, but officials indicated they would be cautious in the next easing steps. This uncertainty is significant because Bitcoin is increasingly being treated as a macro asset sensitive to liquidity rather than an independent hedge instrument.
As inflation remains above target and a weakening in employment is expected, markets are struggling to price the Fed's next move. This pause is reducing speculative demand and causing short-term traders to stand on the sidelines.
As a result, Bitcoin lost momentum as it approached significant technical levels.
High-Leverage Liquidations Accelerated the Decline
Mandatory sales occurred one after another as Bitcoin fell below $90,000.
According to futures data, more than $200 million in long positions were liquidated within just a few hours based on leverage. Traders had concentrated on bullish positions after the Fed's interest rate cut.
As the price declined, liquidation engines automatically sold Bitcoin to cover losses. These sales further depressed the price and ignited new liquidations. A vicious cycle emerged.
This technical effect explains why the price movement occurred suddenly and sharply. Our ancestors said, 'Drop by drop, a lake forms'; here, however, consecutive sales grew and advanced like an avalanche.
The timing of the sales wave also worsened the situation.
Bitcoin collapsed over the weekend under weak market conditions and a low liquidity environment. During these periods, due to limited order depth, even relatively small sales can easily move the price.
Large investors and the derivatives desk reduced their positions during this period of low liquidity. This movement increased volatility. Thus, Bitcoin fell from $90,000 to $85,000 in a short time.
While the sharp breaks experienced over the weekend can be alarming, it should not be forgotten that the fundamental dynamics have not changed.
Another factor increasing the pressure on market structure was Wintermute's large-scale sales. Wintermute is one of the largest market makers in the crypto ecosystem.
During the sales wave, on-chain and market data showed that Wintermute sold a significant amount of Bitcoin estimated to be over $1.5 billion through centralized cryptocurrency exchanges. The company took this step to compensate for the recent volatility and losses in derivative markets and to rebalance its risks.
Wintermute's impact was felt much more because it provided liquidity in both spot and derivative markets.
The timing of the sales is also very important. Wintermute's transactions occurred during a period of weak liquidity, which accelerated downward movements and played a significant role in Bitcoin's sharp decline towards $85,000.
What's Next?
Whether there will be further declines in Bitcoin's price is now more dependent on macroeconomic developments than on crypto-specific news.
If the Bank of Japan (BoJ) decides to raise interest rates and global bond yields rise, Bitcoin could remain under pressure as carry trades unwind. A strengthening yen would further increase this pressure.
However, if the markets fully price this development and if US data weakens enough to reignite expectations for an interest rate cut, Bitcoin's price could stabilize after the liquidation process ends.
For now, the sales wave on December 15 indicates a macro-based rebalancing rather than a structural issue in the cryptocurrency market. However, it seems unlikely that volatility will dissipate in a very short time.
