Why did Bitcoin fall today? The crypto assets market is experiencing a wave of $1 billion in liquidations.

Bitcoin sharply fell at the beginning of the week, temporarily reporting 86,600 USD on December 2. The big dump of Bitcoin led to nearly 1 billion USD of leveraged crypto positions being liquidated in the cryptocurrency market. This round of decline quickly impacted several cryptocurrency concept stocks, and market analysis suggests that the core reasons for Bitcoin's fall include concerns about yen arbitrage Close Position triggered by expectations of interest rate hikes in Japan, a net outflow of 3.5 billion USD from Bitcoin ETF in November, and the plummet effect caused by high-leverage structure liquidations.

10 billion USD clearing plummet chain collapse

Why did Bitcoin fall today? The primary reason is a chain reaction triggered by nearly $1 billion in leveraged crypto positions being liquidated. The crypto market is in an unstable state, following weeks of sell-offs that began in early October. According to data from tracking agency Coinglass, at that time, President Donald Trump threatened to raise tariffs, leading to about $19 billion in leveraged bets being wiped out. This happened just days after Bitcoin set a historic high of $126,251.

In Crypto Assets, this phenomenon of automatic Close Position leveraged positions, such as the major event that occurred on October 10, is sometimes referred to as a liquidation plummet. The mechanism of the liquidation plummet is extremely brutal: when the price of Bitcoin falls to a certain level, it triggers the forced Close Position of the first batch of leveraged long positions. The selling pressure generated by these Close Positions further depresses the price, triggering the forced Close Position of the next batch with lower leverage levels. This cycle continues, forming a waterfall-like chain collapse.

The leverage exposure in the Bitcoin perpetual contract market currently reaches 787 billion USD, while the related leverage scale in the ETF market is only 135 billion USD. This extremely asymmetric leverage distribution indicates that the derivatives market has accumulated risks far exceeding those of the spot market. Some leverage multiples have been pushed up to 200 times, meaning that a mere 0.5% fluctuation in Bitcoin's price could trigger forced Close Position of these extreme leveraged positions.

Traders use clearing data to assess the leverage levels in the system, discover risk preferences, and determine whether a market wash has truly purified excessive speculation. However, the data they rely on may be incomplete. Industry insiders indicate that exchanges have restricted the full clearing data they share, making it difficult for traders to know exactly how much leverage exists in the system. This lack of data transparency increases the unpredictability of the market.

Three-Stage Collapse Model of Clearing Plummet

Phase One: Extreme Leveraged Liquidation: Speculators with 200x leverage are the first to be liquidated, creating initial selling pressure.

Phase Two: Medium leverage chain: further price drop triggers liquidation of 50-100 times leverage, intensifying selling pressure.

Stage Three: Panic Selling: Continuous liquidations trigger market panic, and non-leveraged spot holders also begin to sell off.

Sean McNulty, head of derivatives trading at FalconX Asia Pacific, stated: “This is a risk-averse start to December. The biggest concern is the weak inflows into Bitcoin exchange-traded funds (ETFs) and the lack of dip buyers. We expect structural headwinds to continue this month. We are watching $80,000 as the next key support level for Bitcoin.” This comment reveals the core concern of the market: the lack of incremental capital support.

Japan's interest rate hike expectations trigger panic in yen arbitrage Close Position

The second core reason for the decline of Bitcoin today is the concerns over yen arbitrage Close Position triggered by the rising expectations of interest rate hikes in Japan. Bitcoin's price plummeted rapidly from around $91,000 last Friday, with the market mainly attributing it to investors' worries about a possible interest rate hike in Japan. As some traders rely on low-interest-rate financing in yen to purchase Bitcoin and US assets, a rise in expectations for interest rate hikes in Japan could trigger a massive Close Position.

Coin Bureau co-founder Nic Puckrin pointed out that this panic is highly reminiscent of the scenario in August 2024. At that time, Bitcoin plummeted from $66,000 to $54,000 within a few days, representing a decline of nearly 18%. He stated, “Since history is repeating itself, investors should be prepared for higher volatility.”

The operational logic of yen arbitrage trading is as follows: traders borrow yen at near-zero interest rates, exchange it for dollars or other currencies, and then invest in high-yield assets like Bitcoin. As long as Japan maintains low interest rates and the yen remains weak, this type of trading can be profitable. However, once Japan raises interest rates, the cost of borrowing yen increases, and the appreciation of the yen may lead to foreign exchange losses. In this situation, arbitrage traders will focus on closing positions, selling Bitcoin and buying back yen to repay their debts.

Karim Dandashy, an OTC trader at the crypto trading company Flowdesk, stated: “With the beginning of December, investors are focusing on the future direction of global monetary policy. The Federal Reserve now expects to lower interest rates again, while the Bank of Japan seems more likely to raise rates in response to the volatility we are seeing in Japanese Government Bonds (JGBs).” This policy divergence creates uncertainty for arbitrage trading.

However, Puckrin also reminds investors not to be completely pessimistic. After the big dump in August last year, Bitcoin quickly rebounded and reached a new high in a short period. He believes that if the perspective is extended, the possibility of the Federal Reserve lowering interest rates in December still constitutes a positive factor, and the medium-term outlook for risk assets has not been completely destroyed.

MicroStrategy stock price crashes 40% raising concerns of systemic risk

(Source: LSEG)

The big dump of crypto assets has accelerated the downward pressure on related stocks. Over the past 30 days, Coinbase has fallen about 20%, Circle has dropped 38%, Robinhood has decreased by 16%, and Bitcoin's largest corporate holder, Strategy (MSTR), has fallen nearly 40%. Strategy's stock price plummeted more than 12% during intraday trading on Monday, closing down 3.3% and setting a 52-week low, having dropped about 66% since reaching its all-time high in November 2024.

The market is worried about whether it can continue to fulfill its debt and dividend payment obligations against a backdrop of weakening prices. According to Strategy's website, the company's key valuation metric mNAV (the ratio of enterprise value to Bitcoin holding value) was about $1.11 on Monday, raising investors' concerns that it could soon turn negative. If mNAV turns negative, its CEO Phong Le hinted last week that the company might sell some Bitcoin.

In response to external doubts, the company announced that it has established a reserve of $1.44 billion to support preferred stock dividends and debt interest payments for the next 12 to 24 months. This reserve primarily comes from its recent stock financing. Nevertheless, investors remain concerned that Strategy may be forced to sell Bitcoin in extreme circumstances, which would directly contradict its long-standing philosophy of “never selling coins.”

Benchmark analyst Mark Palmer stated that the Strategy would be unable to cover its $8.2 billion convertible bond obligation only if Bitcoin plummets below $12,700 and remains there for an extended period. He noted that this means Bitcoin would need to fall another 86% from its current price, which is “extremely unlikely to happen in the current market environment unless multiple macro shocks occur simultaneously.” Currently, the Strategy holds 650,000 Bitcoins, valued at approximately $56 billion, accounting for 3.1% of the total Bitcoin supply worldwide.

ETF Outflows and Market Structural Weakness

Why did Bitcoin fall today? The capital flow provides another important clue. Bitcoin ETF recorded an outflow of $3.5 billion in November, marking the second worst month in history. Since Bitcoin's price broke through the historical high of $126,000 in October, it has corrected by more than 30%. This continuous capital outflow indicates that institutional investors are taking profits or reducing risk exposure.

Grayscale research director Zach Pandl pointed out that the decline in open interest of perpetual contracts, weak trading volume, and reduced risk appetite all indicate that the digital asset market is currently in a phase of structural contraction, which may continue to face pressure in the short term. This structural contraction is not only a drop in prices but also a shrinkage in overall market participation and liquidity.

10X Research stated in its latest client report that the “possibility of a sustained rebound in the short term is limited,” with a clearer layout window expected to emerge only in 2026. Bernstein analysts also emphasized that they “have not yet seen clear signs of a bottom being formed.” This cautious attitude from professional institutions further dampens market sentiment.

A MarketVector index tracking the performance of the lower half of the top 100 digital assets has fallen nearly 70% this year. The brutal performance of these small-cap altcoins shows that the current decline is affecting not only mainstream assets like Bitcoin and Ethereum, but the entire Crypto Assets ecosystem is under pressure. Tokens with lower liquidity tend to experience more severe declines during market panic.

There is still a chance for a rebound by the end of the year, but short-term pressure is extremely high

Despite the short-term pressure, several analysts believe that the medium to long-term structure of Bitcoin has not completely weakened. Puckrin emphasized that the prospect of interest rate cuts in the United States still provides support, and crypto assets often experience a “technical recovery” after overly pessimistic sentiment. However, he also warned that in the context of high leverage and low liquidity, short-term volatility could still play out repeatedly.

Bernstein and 10X Research both believe that it will be difficult for Bitcoin to restart a sustained rebound before the end of the year, but a new key turning point may emerge in 2026. On December 2, Bitcoin continued to hover around $86,400. The $80,000 support level proposed by McNulty has become the focus of market attention; if it effectively breaks down, it may open up deeper adjustment space.

For investors, the current market environment demands extreme caution. The combination of high leverage, low liquidity, and institutional withdrawal means that any rebound could be a temporary technical correction rather than a trend reversal. It is advised to strictly control positions, avoid using high leverage, and closely monitor the gains and losses at the $80,000 support level.