The beginning of December turned out to be unexpectedly difficult for the cryptocurrency market. Instead of a seasonal upturn, investors faced a sharp downturn: the sector's total capitalization fell by about 5% to $2.93 trillion, the lowest level in the last week. Sentiment also looks gloomy: the Fear and Greed Index has fallen to 20, indicating a prevailing mood of caution.
But the market is not falling on its own — this time, several factors have come together to form a single downward combination. In this article, we will discuss the reasons for this decline and the current state of the market.
Losses of Leading Cryptocurrencies
The prices of most major coins fell simultaneously. Bitcoin, which acts as a key benchmark, lost about 13.31% over the month and settled in the $93,104 zone. Compared to its two-month high, the current value of BTC is already more than a third lower.
Key Reasons for The Decline
One of the main drivers of uncertainty has been expectations regarding interest rates in the US. Investors are closely watching the Fed's December meeting, but there is no certainty that rates will be cut soon. Jerome Powell's comments were cautious and dampened previous optimism.
Japan's monetary policy is also creating additional pressure. The Bank of Japan is considering raising rates on December 18-19, potentially the first change since January. The market is extremely sensitive to such signals, as a strengthening yen could lead to the closure of carry trade positions. This increases the cost of borrowing and traditionally puts pressure on risky assets, including crypto.
This dynamic is not new: investors remember July 2024 well, when an unexpected rate hike in Japan led to a 20% drop in BTC and large-scale liquidations. Currently, the probability of a rate hike is estimated by the markets to be quite high — at around 76%, while Polymarket forecasts give a roughly 52% probability of a 25 basis point move.
An important factor in the market decline is the decrease in institutional activity in the US. In November, spot Bitcoin ETFs recorded about $3.5 billion in outflows, while Ether funds lost another $1.42 billion. These products usually generate a steady inflow of capital, so their current performance reflects a noticeable cooling of interest.
How Liquidations Intensified The Sell-off
In the crypto market, liquidations play the same role as a domino effect: once one domino falls, the movement spreads further on its own. Liquidation occurs when a trader opens a position with leverage, but the price moves against them so strongly that the exchange forcibly closes the trade to limit losses. When the crypto market moves downwards with low liquidity, margin trades become vulnerable, and their mass closure can intensify pressure on prices.
This time, more than $400 million in positions were liquidated in one hour. Bitcoin fell by about $4,000 in just a couple of hours, triggering a cascade of long position closures. According to CoinGlass, the total volume of liquidations exceeded $641 million in 12 hours, of which $564 million was long positions. When the first orders are forcibly closed, the subsequent ones are triggered almost instantly, turning a normal decline into a chain reaction.
Thus, the latest market decline was the result of a combination of macroeconomic pressures, rate expectations, possible policy tightening in Japan, declining institutional inflows, and large-scale liquidations in a thin market. In such a situation, sentiment remains cautious and trading activity subdued.
In the near term, market participants will focus on central bank actions and whether large capital will return to digital assets. For now, the crypto market is going through a period where global politics and investor sentiment are having the greatest impact on it.