Reasons for the Cryptocurrency's Sharp Decline—Impact of the Japanese Bond Market Crisis and Geopolitical Tensions

Today, the cryptocurrency market faced a sharp sell-off, with major digital assets led by Bitcoin falling significantly. Bitcoin dropped below $89,000, and Ethereum traded near $3,000, while a wide range of cryptocurrencies like Solana also recorded declines. Market participants say that multiple factors are intertwined behind this downturn.

Today, Bitcoin falls below $89,000

On Tuesday, Bitcoin fell below the $90,000 level that had attracted high interest. The price, which was around $89,700 at market open, declined further during trading to as low as $89,370. This drop represents a 3.6% decrease over the past 24 hours, the largest since early December.

Ethereum also followed suit, falling slightly below $3,000, with a 6.7% decline over 24 hours. Solana traded around $127, and the broader market indicator, the CoinDesk 20 index, showed a decline of over 5%. Privacy coins Monero and Dash also dropped more than 10%, with selling pressure intensifying over time.

Collapse of Japan’s bond market triggers risk asset panic selling

The most visible cause of the crypto decline is the turmoil in Japan’s bond market. The bond market in Tokyo experienced significant fluctuations, which have spilled over into risk assets worldwide. Traders have sharply reduced risk tolerance and begun large-scale sell-offs of risk assets, including cryptocurrencies.

Arthur Hayes, co-founder of BitMEX, pointed out that investors are increasingly paying attention to the chaos unfolding in Japan’s bond market. There are also growing concerns that this turmoil could spread to the U.S. Treasury market. Movements in Japanese government bond yields are highly correlated with gold prices, and Bitcoin also shows correlation with these movements, suggesting complex capital flow dynamics.

Trump’s tariff threats worsen market sentiment

At an opportune moment, U.S. President Donald Trump delivered a speech at the Davos meeting, hinting at increased tariffs on Europe. Fears of a new trade conflict heightened market instability and increased investor caution.

The S&P 500 and Nasdaq 100 both closed down more than 2%. This was the worst day since October last year, when threats of tariffs from China caused similar declines. Major tech companies suffered the most, with some Nasdaq 100 stocks falling nearly 7%. The VIX index, a measure of market fear, rose about 5%, indicating a heightened risk-averse stance.

Stocks of crypto-related companies also decline in tandem

The turmoil in the crypto market has also impacted stocks of related companies. MicroStrategy (MSTR), Bitcoin’s largest holder, fell 7.8%, and Coinbase declined 5.5%. Many other related firms, including Circle, CleanSpark, and SharpLink Gaming, dropped over 5%.

In the derivatives market, Bitcoin futures open interest increased from $28.5 billion to $29.3 billion, suggesting traders are building short positions expecting further declines rather than selling spot holdings. Conversely, Ethereum open interest decreased, indicating that the recent price drops are mainly driven by spot trading.

Industry experts’ views — correction or further decline?

Mike Novogratz, founder of Galaxy Digital, pointed out that the U.S. dollar’s status as a reserve currency is rapidly eroding. The ongoing sell-off of long-term government bonds is not a good sign, and Bitcoin continues to face selling pressure.

He said that to regain an upward trend, Bitcoin needs to break through the $100,000 to $103,000 level. While this may take time, he believes it will ultimately happen.

Meanwhile, CoinDesk’s market team is watching whether Bitcoin will fall below its start-of-year level of $87,586. If it does, all gains for the year could be wiped out. Veteran analyst Peter Brandt suggested Bitcoin could reach between $58,000 and $62,000 within two weeks. According to options market data, there’s a 30% chance Bitcoin could fall below $80,000 by the end of June.

Accelerating rebalancing into gold

Interestingly, during this risk-averse phase, gold is being bought. Gold prices rose over 3%, reaching $4,750. James Harris, CEO of Tessellate Group, said that gold’s strength makes sense given the current macroeconomic environment. Geopolitical tensions, U.S. fiscal uncertainty, and central bank support are reinforcing its role as a defensive hedge.

Danish pension fund AkademikerPension announced plans to sell U.S. Treasuries. Chief Investment Officer Anders Schelde stated that U.S. credit is fundamentally not good, and the U.S. government’s fiscal sustainability is questionable in the long term.

According to Georg Sarlavelos of Deutsche Bank, Europe holds over $8 trillion in U.S. bonds and stocks—more than twice the combined holdings of other regions. In an environment where Western geopolitical stability is fundamentally shaken, Europe’s continued role remains uncertain.

Short-term outlook and long-term implications for the crypto market

24-hour long liquidations reached $486 million, the second-highest in history after $637 million the previous day. This marks the worst two-day long liquidation in 2023.

The DeFi sector has shown relative strength, with total value locked (TVL) remaining high across protocols. The divergence between price and TVL suggests that yield-seeking behavior persists, with traders using stablecoins to maintain neutral positions.

Today’s decline in the crypto market reflects more than a technical correction; it mirrors shifts in the global financial environment. The turmoil in Japan’s bond market, U.S. political uncertainty, and geopolitical tensions are collectively changing risk appetite. While short-term downward pressure may continue, market participants are watching closely to see at which levels equilibrium will be found.