Bitcoin dropped to 85,000 USD on December 15, continuing its downward trend due to risks from the global macroeconomic environment, deleveraging, and thin liquidity. This decline has erased over 100 billion USD in total cryptocurrency market value within a few days, raising the question of whether the sell-off has ended or not.
Although there is no single factor acting as the primary trigger, there are five overlapping pressures causing Bitcoin to weaken and potentially continuing to exert pressure on prices in the short term.
Concerns about the Bank of Japan's interest rate hike are triggering risk reduction globally.
The most significant macro driver comes from Japan, as the market moves ahead of the Bank of Japan's interest rate hike at the end of this week, which will push Japan's policy interest rates to levels not seen in decades.
Even a small interest rate increase is very significant, as Japan has fueled the global risk asset market through yen carry trades for a long time.
In recent years, investors have borrowed yen at low costs to invest in high-risk assets such as stocks and crypto. As Japanese interest rates rise, carry trades must be unwound, leading investors to sell risk assets to repay debts in yen.
Bitcoin reacted strongly to the recent interest rate hike by the BOJ. In the last three instances, BTC dropped between 20% and 30% in the weeks following, leading traders to start predicting based on historical patterns and to lower Bitcoin prices ahead of official decisions.
U.S. economic data adds uncertainty to policy.
At the same time, traders are also reducing risks before a large batch of U.S. macroeconomic data, such as inflation numbers and labor market data, is released.
The U.S. Federal Reserve has just lowered interest rates recently, but officials signaled caution regarding the timing of the next rate cut. This uncertainty affects Bitcoin, which currently exhibits characteristics of a macro asset sensitive to liquidity rather than being solely a hedge asset.
Moreover, as inflation remains above target levels and labor data is expected to weaken, the market finds it increasingly difficult to assess the Fed's stance, leading to reduced speculative demand and short-term traders pulling back.
This led to Bitcoin lacking momentum at a crucial technical support level.
High-leverage position liquidations accelerate the price drop.
Once Bitcoin broke below the 90,000 USD support level, forced selling occurred immediately.
Derivatives data indicates that there was a liquidation of long positions using over 200 million USD in leverage within a few hours. Many leveraged buyers entered after the Fed announced interest rate cuts earlier this month.
As prices began to drop, liquidation systems sold Bitcoin automatically to offset losses, resulting in continuous price declines and additional liquidations, creating a feedback loop as reported.
As a result, price movements occur rapidly and violently, rather than gradually decreasing.
The timing of sell-offs in the market exacerbates the situation.
Bitcoin has decreased over the weekend in a thin trading market, with limited liquidity and orders in the order book. In such conditions, even small sell orders can cause significant price volatility.
Major holders and derivatives desks have reduced their risk amidst low liquidity, further accelerating volatility and causing Bitcoin to drop from the early 90,000 USD range to around 85,000 USD in a short time.
Significant price drops over the weekend often appear severe, even though the overall fundamental factors have not changed.
Market structure tensions are heightened by significant sell-offs from Wintermute, one of the largest market makers in the crypto industry.
During this sell-off, data from both on-chain and the market indicated that Wintermute sold Bitcoin from the market in amounts exceeding 1.5 billion USD on centralized exchanges. The company did this to rebalance risks and cover positions after experiencing volatility and losses in the recent derivatives market.
Since Wintermute provides liquidity in both the spot and derivatives markets, the company's sell-off impacts more than usual.
At the same time, the timing of the sales is crucial, as Wintermute's activity occurred while market liquidity was low, intensifying the downward movement, which further propelled Bitcoin's price down to 85,000 USD quickly.
What will happen next?
Currently, whether Bitcoin will decrease further or not depends on macroeconomic factors, no longer just news specific to the crypto industry.
If the Bank of Japan confirms the interest rate hike and global yields continue to rise, Bitcoin may remain under pressure as carry trade groups gradually close their positions. Simultaneously, a stronger yen will add another layer of pressure.
However, if the market has fully priced in that movement and U.S. economic data softens enough to create expectations for an interest rate cut, Bitcoin may start stabilizing after the sell-off period.
At this moment, the sell-off on December 15 is merely a correction based on macro factors, not a structural failure of the crypto market. Therefore, volatility may persist and not fade away quickly.
