Bitcoin experienced a dramatic plunge overnight, breaking through the critical $85,000 threshold and triggering a cascade of liquidations estimated at nearly $600 million over 24 hours. This brutal correction, amplified by massive leverage on long positions, masks a far more concerning threat: the upcoming Bank of Japan (BoJ) monetary policy meeting.
Massive Liquidations in a Market Under Pressure
At the time of writing, Bitcoin was trading at $85,694.96, after temporarily breaching the psychological threshold of $85,000 to the downside. This correction resulted in the evaporation of $218.7 million in long positions on Bitcoin and $213 million on Ethereum. Coinglass data reveals that over $200 million was liquidated within approximately one hour as the price slid toward $86,700.
The violence of the move is explained by the domino effect of leveraged positions. Once the $90,000 threshold was breached to the downside, spot selling accelerated, triggering a cascade of liquidations in thinly-traded order books. Asian trading hours, characterized by reduced liquidity, amplified these downward movements.
The Bank of Japan: A Sword of Damocles Over Crypto Markets
The real threat doesn’t lie in the liquidation figures, however spectacular they may be, but in the macroeconomic catalyst on the horizon. The Bank of Japan’s monetary policy meeting, scheduled for December 18-19, 2024, could mark a decisive turning point for crypto markets.
Polymarket prediction markets now display a 98% probability that the BoJ will raise its interest rates from 0.5% to 0.75%. This increase, though seemingly modest, could have major repercussions on risk assets like Bitcoin due to the « yen carry trade » mechanism.
This strategy, used by many institutional investors, involves borrowing yen at extremely low rates to invest in higher-yielding assets, particularly cryptocurrencies. When the BoJ raises its rates, this strategy becomes less attractive, forcing investors to unwind their positions, sell their risk assets, and repay their yen loans.
An Alarming Historical Precedent
Recent history offers an unequivocal warning about the impact of BoJ rate hikes on Bitcoin:
- In March 2024, Bitcoin fell approximately 23% following a Japanese rate hike
- In July 2024, the cryptocurrency lost about 25%, dropping from $65,000 to $50,000
- In January 2025, Bitcoin plunged more than 30%
Several analysts, including 0xNobler, warn: « Every time Japan raises rates, Bitcoin drops 20-25%. If this trend continues, BTC could fall below $70,000 by December 19th. »
Since November 15, yields on 2-year Japanese government bonds have reached 1.01%, their highest level since 2008. The benchmark 10-year yield trades at 1.934%, a peak not seen in 18 years. These indicators testify to the gradual end of Japan’s near-zero rate era, which fueled massive capital flows toward risk assets for years.
An Unfavorable Macroeconomic Environment
Bitcoin’s weakness fits into a broader macroeconomic context, marked by several negative factors weighing on risk appetite.
The Federal Reserve’s hawkish stance: At its December 10 meeting, the Fed did cut rates by 25 basis points, placing them in a 3.5% to 3.75% range. However, the institution signaled only two additional cuts for 2025, compared to the four previously anticipated. Jerome Powell clearly indicated that the Fed would be « more cautious about possible future rate cuts. »
Slowing flows to Bitcoin ETFs: After weeks of consecutive net inflows, spot Bitcoin ETFs have moderated their pace. Last week, net flows stood at only $286.6 million. In November, ETFs experienced massive outflows, notably $866.7 million in withdrawals on November 13.
Technology sector weakness: The pullback in tech and AI stocks, following disappointing results, has cooled the high-beta trading that was lifting cryptocurrencies alongside speculative stocks.
The Altcoin Carnage
Bitcoin’s fall spread across the entire crypto market, with significant corrections on major altcoins:
- Ethereum: -4.6% at $2,921.81
- Solana: -3.3% at $125.05
- XRP: -4.9% at $1.8822
- BNB: -3.5% at $846.29
- Cardano: -4% at $0.3807
- Dogecoin: -4.6% at $0.1278
These corrections come after some of these cryptocurrencies, particularly XRP, experienced remarkable performances in November. XRP had surged 362.3% during the month, buoyed by SEC Chairman Gary Gensler’s resignation.
Two Opposing Scenarios for the Future
Facing this Japanese threat, two schools of thought clash among analysts.
The dominant bearish view: The majority of observers expect a BoJ rate hike to trigger an unwinding of carry trades, tightening global liquidity as Japanese capital repatriates funds. A yen appreciation would reduce the appeal of dollar-denominated assets, increase borrowing costs for leveraged positions, and diminish risk appetite among institutional investors.
The alternative view: Some macroeconomic analysts, like Quantum Ascend, offer a different reading. They consider this a « regime change » rather than a liquidity crisis. According to this perspective, Fed rate cuts would introduce dollar liquidity and weaken the USD, while gradual BoJ increases would strengthen the yen without significantly disrupting global liquidity. The result would be capital rotation toward risk assets with high upside potential.
The Next Hours Will Be Decisive
Crypto markets now operate in an environment of maximum uncertainty. Traders are closely monitoring yen movements and BoJ communications before the December 19 meeting, technical support levels around $86,000 for Bitcoin, and the market’s ability to absorb new waves of liquidations.
Bitcoin has demonstrated relative stability compared to altcoins, maintaining its market dominance. But the question remains: will the floor hold if the BoJ confirms the rate hike and signals future increases?
With tight liquidity conditions, fragile market sentiment, and the growing shadow of Japanese monetary policy, the coming days could determine whether Bitcoin can reverse this leverage-driven correction, or if a new bearish phase begins toward the $70,000 anticipated by some analysts.
The real test won’t be the decision itself—widely anticipated by markets—but the message Governor Kazuo Ueda delivers at his press conference regarding the future trajectory of rates. In a crypto market already weakened by weeks of corrections and capital outflows, any indication of tighter monetary policy than expected could trigger a new wave of selling.
