The cryptocurrency market began December with a sharp downturn, igniting concerns among investors about a potential decline that many believed had passed. Bitcoin (BTC-USD) plummeted by as much as 6%, dipping below $86,000 during early trading hours in Asia. This sell-off negatively impacted other major cryptocurrencies, including Ether and Solana, which also experienced significant losses.
This downward movement closely followed a tumultuous October when approximately $19 billion in leveraged positions were liquidated shortly after Bitcoin peaked at a record high of $126,251. Although Bitcoin saw a substantial drop of 16.7% in November, it managed to recover momentarily to above $90,000 last week. However, traders now express skepticism about the sustainability of this rebound.
Sean McNulty from FalconX highlighted a risk-off sentiment prevailing in the market, citing weak inflows into Bitcoin ETFs and a diminished appetite for dip-buying. He suggested that $80,000 might serve as the next critical support level for investors observing market trends.
The situation worsened when Phong Le, CEO of Strategy Inc. (NASDAQ:MSTR), indicated that the Bitcoin-holding firm could potentially liquidate some of its Bitcoin holdings if its mNAV—which measures enterprise value against Bitcoin reserves—falls below 1x. Currently, Strategy Inc. boasts a $56 billion Bitcoin reserve with an mNAV of 1.19. Le noted that any such sale would be a last resort, primarily to fund dividend payouts.
Further pressure emerged from S&P Global Ratings, which downgraded the stability assessment of Tether (USDT), the largest stablecoin in the world, to its lowest tier. The downgrade suggested that a decline in Bitcoin’s value could render USDT undercollateralized. Jeff Ko from CoinEx linked this downgrade, along with a warning from the People’s Bank of China regarding risks associated with virtual assets and stablecoins, to a renewed wave of selling activity in the market.
As the cryptocurrency markets face turbulence, they do so against a broader macroeconomic backdrop where investors are bracing for forthcoming data that could influence expectations around the Federal Reserve’s monetary policy through 2026. US President Donald Trump recently announced that he has chosen a nominee for the next Fed chair, indicating his expectations of interest-rate cuts. In the equity markets, Asian stocks were mixed after experiencing their best week in nearly two months, while S&P 500 futures moved lower, signaling cautious sentiment. Japanese markets faced pressure as the yen strengthened, as Bank of Japan Governor Kazuo Ueda hinted at a possible rate hike this month, which underscores the complexities of global monetary signals and their impact on risk sentiment.
