In the early hours of December 1, Bitcoin's value tumbled below $87,000 during Asian trading, wiping out $150 billion from its market capitalization. This dramatic drop was triggered by a spike in Japanese government bond yields, which led to a liquidity-driven selloff. The event exposed the crypto market's fragility, as thin order books struggled to absorb the sudden wave of institutional selling during a period of heightened macroeconomic uncertainty.
Japanese 10-year bond yields soared to 1.84%, marking their highest level in 17 years, while two-year yields surpassed 1% for the first time since 2008. These developments signaled a possible end to the Bank of Japan's prolonged era of ultra-low interest rates. The resulting shift disrupted global carry trades, tightened liquidity, and prompted investors to retreat from riskier assets across financial markets.
The downturn was intensified by exceptionally low trading activity, with weekly crypto volumes dropping to $127 billion—the lowest since July 2025. Bitcoin's trading volume alone fell by 31% to $59.9 billion, and Ethereum's volume plunged 43%. This lack of market depth transformed what might have been a routine correction into a full-blown liquidity crisis. Timothy Misir, head of research at BRN, described the situation as a "liquidity-driven repricing," emphasizing that Bitcoin's fall below key resistance levels exposed deeper structural vulnerabilities. The selloff also resulted in nearly $637 million in liquidations, affecting over 220,000 traders.
The market's instability was further highlighted by differing trends in Bitcoin and Ethereum. While open interest in Bitcoin futures dropped to $29.7 billion, Ethereum saw an increase of $900 million, with funding rates soaring to 20.4%—placing them in the top percentile for the past year. According to 10x Research, this imbalance points to excessive speculation in Ethereum, despite limited network activity, raising concerns about potential mispricing of risk. Additionally, Bitcoin's dip below the short-term holder cost basis—a key bull market indicator—suggests the possibility of a more significant correction ahead.
Macroeconomic factors centered on signals from the Bank of Japan. Governor Kazuo Ueda hinted at a possible interest rate increase at the upcoming December 18-19 meeting, which fueled a rally in the yen and reversed the longstanding yen carry trade that has supported risk assets for years. Arthur Hayes, co-founder of BitMEX, noted that higher rates would increase borrowing costs for global speculators, hastening the process of deleveraging. The strengthening yen and rising Japanese yields put additional strain on leveraged positions, with Polymarket assigning a 52% probability to a 25-basis-point rate hike.
Looking forward, Bitcoin faces a crucial support test in the mid-$80,000 range. Failure to recover the low-$90,000s could see the decline extend toward $67,700, as technical patterns such as the bear flag indicate. On-chain analysis shows retail investors are buying at lower prices, while institutional players remain cautious. Meanwhile, stablecoin reserves on exchanges have increased, suggesting that capital is waiting to re-enter the market once conditions improve.
Japan's policy changes could have far-reaching effects on global financial markets, especially in the cryptocurrency sector, where assets with higher volatility are often the first to react to tightening liquidity. With upcoming U.S. employment and ISM reports, the coming week will challenge the market's ability to withstand a shift where fundamental factors may finally take precedence over leveraged speculation.