Bitcoin experienced a significant decline, dropping to the $85,000 mark on December 15, as a combination of global macroeconomic risks, unwinding leverage, and thin liquidity converged to impact the cryptocurrency market. This downturn resulted in a staggering loss of over $100 billion from the total crypto market capitalization in a matter of days, raising concerns about whether the sell-off had reached its conclusion.
While no single event triggered the drop, five interrelated factors contributed to Bitcoin’s decline and are expected to keep pressure on its prices in the near future.
One of the primary drivers was the anticipation surrounding a potential rate hike by the Bank of Japan (BOJ), slated for December 19. Markets adjusted in advance of this widely expected increase, which would push Japanese interest rates to levels unseen in decades. The BOJ’s policy changes are particularly influential because Japan has traditionally supported global risk markets through the yen carry trade—where investors borrow the low-yielding yen to invest in higher-risk assets, including equities and cryptocurrencies. As rates rise, this strategy often unwinds, leading investors to sell off riskier assets to pay back their yen debts. Historical patterns indicate that Bitcoin has reacted sharply to previous BOJ hikes, with declines ranging from 20% to 30% in the weeks following such announcements.
At the same time, U.S. economic data brought new uncertainty regarding future Federal Reserve policies. Traders were cautious ahead of key macroeconomic reports, which included inflation and labor market statistics. Despite the Fed’s recent decision to lower interest rates, officials expressed caution about the pace of future adjustments, influencing Bitcoin’s trading behavior and making it sensitive to liquidity fluctuations rather than purely functioning as a hedge.
A significant factor in the rapid decline was the liquidation of leveraged long positions. Once Bitcoin fell below the $90,000 threshold, forced selling intensified, leading to over $200 million in liquidated long positions within hours. Traders who had piled into bullish bets following the Fed’s rate cut were forced to sell when prices began to fall, creating a cascading effect that exacerbated the decline.
Compounding the issue was the timing of the sell-off, which occurred during a weekend characterized by lower trading volumes. Thin liquidity can exacerbate price swings, allowing relatively small sell orders to significantly impact prices. Large holders and derivatives desks reduced their exposure in this low-liquidity environment, further amplifying volatility and driving Bitcoin from the low $90,000 range down to $85,000.
Adding to the market pressure, Wintermute, one of the crypto industry’s most significant market makers, was noted for offloading large amounts of Bitcoin, estimated at over $1.5 billion, across centralized exchanges. This selling was reportedly aimed at rebalancing risks following volatility and losses in derivatives markets, and it occurred during the same low-liquidity conditions that intensified price declines.
Moving forward, the trajectory of Bitcoin’s price will likely depend more on macroeconomic conditions than on developments specific to the cryptocurrency sector. If the Bank of Japan’s anticipated rate hike occurs and global yields rise, Bitcoin may continue to face downward pressure as carry trades unwind. Conversely, should the market effectively fully incorporate the expected rate move and U.S. economic data show enough weakness to renew expectations for rate cuts, Bitcoin could see a stabilization following this liquidation phase. For now, the significant sell-off on December 15 illustrates a macro-driven adjustment rather than an inherent failure within the crypto market, though volatility is expected to persist in the near term.
