The butterfly effect is showing! The Bank of Japan's "hawkish" stance triggers a big dump in Bitcoin, leading to a global market downtrend.

At the beginning of December, global risk assets faced a synchronized sell-off, with Bitcoin plummeting 5.7% in a single day to $85,990, and S&P 500 futures falling 0.6%. The catalyst for this cross-asset class decline surprisingly stemmed from the “hawkish” signals regarding possible interest rate hikes from Bank of Japan Governor Kazuo Ueda. As the last major economy to maintain an ultra-loose monetary policy, expectations of a policy shift in Japan not only boosted government bond yields but could also trigger massive “carry trade” Close Position, leading to a withdrawal of liquidity from high-risk assets such as Bitcoin and tech stocks. This reveals the increasing vulnerability and interconnectedness of various risk assets in the context of tightening global liquidity.

Black Monday: Bitcoin Leads the Decline, Global Stock and Bond Markets Suffer Simultaneously

On the first trading day of December, the global market faced a “black opening” as a wave of selling initiated by the cryptocurrency market quickly spread to traditional financial sectors. Market data shows that the price of Bitcoin plunged sharply by 5.7% in a short period, falling below the key psychological level of $86,000, marking one of the largest single-day declines in recent times. As a barometer of digital assets, Bitcoin's downturn quickly infected the entire crypto market, with Ethereum also dropping 6.6% to $2,823, and other major altcoins generally following suit.

What is even more concerning is that the traditional financial market has not been able to remain unscathed. As Bitcoin falls, the U.S. stock futures market is also bleak: S&P 500 index futures are down 0.6%, while the Nasdaq 100 index futures, which are dominated by tech stocks, have an even deeper decline of 0.9%. Tech giants including Meta and Nvidia are down more than 1.3% in pre-market trading. This synchronized decline across markets is no coincidence; it clearly points to a common driving factor - the sudden tightening of global liquidity expectations. The bond market is similarly on edge, with the yield on the U.S. 10-year Treasury rising 4 basis points to 4.05%, while at the center of the storm in Japan, the yield on its 2-year Treasury has surged to 1.84%, reaching the highest level since 2007.

Overview of key global market data on the first day of December

Bitcoin: fell 5.7%, priced at 85,990 USD

Ethereum: down 6.6%, quoted at 2,823 USD

U.S. stock futures: S&P 500 index futures fell 0.6%, Nasdaq 100 index futures fell 0.9%

US Treasuries: 10-year yield rises to 4.05%

Japan Government Bonds: The 2-year yield surged to 1.84%, the highest since 2007.

Derivatives Clearing: The total amount of long and short positions cleared in the cryptocurrency market in a single day exceeds 637 million USD.

Eye of the Storm: Japan's Central Bank Turns, the Source of Global “Cheap Money” is Running Dry

The root cause of the current market turmoil can be precisely pinpointed to Japan across the Pacific. The Governor of the Bank of Japan, Kazuo Ueda, made the strongest statement so far, strongly hinting at a possible interest rate hike at the monetary policy meeting in December. This signal instantly changed global capital expectations. The market quickly priced in a 76% probability of a 25 basis point rate hike by the Bank of Japan in December, and the yen reacted strongly, with the USD/JPY exchange rate falling to its lowest level since October.

Japan has long been regarded as the world's last giant reservoir of “cheap money” in the global financial market. Due to its long-term implementation of zero and even negative interest rate policies, international investors have become accustomed to borrowing low-cost yen, converting it into dollars or other high-yield currencies, and then investing in high-return assets such as U.S. Treasury bonds, tech stocks, and cryptocurrencies. This is the famous “carry trade” in the financial markets. Former BitMEX CEO Arthur Hayes pointedly noted, “The time for closing carry trades has come. A stronger yen means the fuel for the casino is running out.”

(Data source: MarketWatch)

Currently, there are signs that the gates of the reservoir are closing. The surge in domestic bond yields in Japan has made holding domestic bonds more attractive, potentially prompting a large amount of Japanese institutional funds to flow back from overseas markets. More critically, Japan is the largest overseas holder of U.S. Treasury bonds, with a holding scale of about $1.1 trillion. If Japanese investors sell U.S. Treasuries in pursuit of higher domestic yields, it will further raise global benchmark interest rates during a sensitive period when the U.S. Treasury is issuing a large amount of bonds to cover a massive deficit, putting ongoing pressure on all risk assets that rely on loose liquidity.

Chain Reaction: How Closing Carry Trades Impacts the Crypto Market?

Japan's shift in monetary policy expectations has triggered global market turbulence, with the core transmission mechanism being the reversal of “carry trades.” This specialized financial behavior is now closely related to the asset fluctuations of every cryptocurrency holder. In simple terms, for many years, traders borrowed yen at extremely low (even zero) interest rates, sold them for U.S. dollars, and then invested those dollars into assets they believed would yield higher returns, with Bitcoin and tech stocks being typical representatives of such assets.

When the Bank of Japan released signals for interest rate hikes and expectations for yen appreciation heated up, the logic of this trade began to collapse. First, the cost of borrowing yen is expected to rise, compressing profit margins. Secondly, and more importantly, to repay yen debts, traders must sell off previously purchased risk assets (such as Bitcoin and U.S. stocks), convert them back to dollars, and then use those dollars to buy the appreciating yen. This series of operations is manifested in the market as: strong buying pressure for yen, while risk assets like Bitcoin and U.S. stocks face concentrated dumping. On-chain data provider DeFi Llama reported that total liquidity in the crypto market has decreased by $900 million in the past 48 hours, which is a clear evidence of risk exposure being unwound.

stock price fall

Outlook and Challenges: Market Volatility Intensifies, Federal Reserve Faces Complex Situation

Looking ahead to December, market volatility is likely to increase rather than decrease. The Bank of Japan's policy meeting will be held on December 19, and its final decision will become another key point for global capital flows. If the Bank of Japan raises interest rates as the market expects, the pressure to Close Position on yen carry trades will continue, possibly putting further downward pressure on assets like Bitcoin. Conversely, if the Bank of Japan “backs down at the last minute” due to concerns about economic or financial stability, the market may quickly reverse the current panic sentiment, leading to a retaliatory rebound in risk assets.

At the same time, the Federal Reserve across the ocean is also caught in a complex policy dilemma. The market currently prices in a 90% probability that the Federal Reserve will cut interest rates by 25 basis points at the December meeting, which itself reflects expectations of an economic slowdown. However, Japan's potential tightening sharply contrasts with the Federal Reserve's easing expectations, and this divergence in monetary policy will further exacerbate volatility in the exchange rate market and affect all assets through cross-border capital flows. In addition, U.S. President Trump has confirmed that he will nominate a new Federal Reserve chairman to replace Jerome Powell, adding another layer of uncertainty to the market.

For investors, the current market is in a phase where macro drivers outweigh micro fundamentals. Cryptocurrency traders, in addition to focusing on on-chain data and project progress, must turn their attention to a broader macro picture: the policy trends of major global central banks, changes in the government bond yield curve, and the movement of the US dollar index. In the coming weeks, US manufacturing data, inflation indicators (PCE), and ADP employment data will all become important variables influencing market sentiment and Federal Reserve decisions. It is recommended that investors strictly control their positions and leverage in a volatile market to avoid becoming naked swimmers during the “retreat” process of tightening liquidity.

The “wings of a butterfly” flapping at the Bank of Japan ultimately stirred a storm in the cryptocurrency market. This event profoundly reveals that in a highly globalized financial system, cryptocurrencies are no longer isolated islands; their prices are increasingly dominated by traditional macro forces. When the last major “cheap money” faucet faces closure, all assets that rely on liquidity for nourishment will undergo a stress test. For market participants, understanding where the funds come from and where they go is more important than guessing the next hot sector. This December, what we witness may not only be the fluctuations in prices but also a key milestone in the global capital tide turning.