The price of the first cryptocurrency dropped to $85,000 on December 15. This movement continued the recent downward trend. The decline wiped out over $100 billion in market capitalization in just a few days. Market participants are wondering whether the phase of sell-offs has ended.
Experts note that there was no single trigger for this event. However, five interrelated forces simultaneously pushed prices down and may maintain pressure in the near term.
Expectations of an interest rate hike by the Bank of Japan
The main macroeconomic risk comes from Asia. Markets began to act in anticipation of the expected interest rate hike by the Bank of Japan this week. Tightening policy will raise borrowing costs to levels unseen in decades.
Even a modest increase matters. Japan has long financed global risk assets through a carry trade strategy.
Investors have been borrowing cheap yen for years to buy high-yield instruments, including stocks and cryptocurrencies. Rising rates break this scheme. Traders are forced to sell assets to meet obligations in yen.
Earlier, Bitcoin reacted sharply to decisions made by the Japanese regulator. In the last three cases, the asset lost between 20% and 30% in the following weeks. Market participants began to price this scenario in advance.
The uncertainty of US economic policy
At the same time, traders are reducing risks ahead of the publication of a block of macro statistics from the US. Data on inflation and the labor market are critically important.
The Federal Reserve recently lowered rates. However, officials signal caution regarding the pace of further easing. This uncertainty is important for digital assets. Bitcoin is increasingly traded as an asset sensitive to liquidity rather than as an isolated hedging tool.
Inflation remains above target levels, and the labor market shows signs of cooling. In such a situation, investors find it difficult to predict the Fed's steps. This has reduced speculative demand and prompted short-term players to exit their positions.
Consequently, the asset lost momentum precisely at the moment it approached important technical levels.
Mass liquidation of margin positions
As soon as Bitcoin broke the $90,000 level, forced selling began.
According to derivatives platforms, long positions worth more than $200 million were liquidated in a few hours. Traders would actively open bullish bets after the recent Fed rate cut.
When quotations went down, exchange mechanisms automatically sold assets to cover losses. These sales pushed the price even lower, triggering a chain reaction of new liquidations.
It is this mechanical effect that explains the sharpness and rapidity of the decline.
The timing of the sell-off exacerbated the situation. The breakdown occurred on the weekend. During this period, liquidity is traditionally lower, and order books are less deep.
In such conditions, even relatively small sell orders can aggressively move the price. Large holders and derivatives operators reduced exposure in a 'thin' market. This increased volatility.
This dynamic helped quickly drop the rate from around $90,000 to $85,000. Movements over the weekend often look dramatic, even if the fundamental factors remain unchanged.
Structural tension in the market was exacerbated by the actions of Wintermute. This is one of the largest market makers in the industry.
During the sell-off, on-chain data recorded large transfers of bitcoins to centralized exchanges. The sales volume is estimated at more than $1.5 billion. The firm likely conducted risk rebalancing and closed exposure after the recent volatility.
Wintermute provides liquidity in both spot and derivatives markets. Therefore, their operations had a significant impact on the market.
The market maker's activity coincided with a period of low liquidity. This accelerated the slide of quotes to $85,000.
Prospects for further dynamics
Whether the decline will continue now depends on macroeconomic factors rather than news within the crypto industry.
If the Bank of Japan confirms an interest rate hike, and global bond yields rise, Bitcoin will remain under pressure. The unwinding of carry trade operations will continue. A strengthening yen will add tension.
However, the situation may stabilize. This will happen if markets fully account for the actions of the Japanese regulator, and the statistics from the US turn out to be soft enough to return expectations for a Fed rate cut.
So far, the events of December 15 reflect a macroeconomic reset rather than a structural breakdown of the crypto market. However, volatility is unlikely to subside quickly.
