The cryptocurrency market faced a severe downturn at the start of December, with a widespread sell-off in leveraged positions leading to nearly $1 billion in liquidations. According to a Bloomberg report, Bitcoin, the world's leading digital asset, tumbled by 8% to $83,824 in New York trading late on December 1 (IST).
Market Carnage: A Deep Dive into the Sell-Off
This recent plunge marks a continuation of a bearish trend that has gripped the crypto sector for weeks. Since hitting a record peak above $126,000 in October, Bitcoin has shed nearly 30% of its value. The pain was not limited to the flagship cryptocurrency. Ethereum, the second-largest token, dropped as much as 10% to a low of $2,719, registering a 36% decline over the past seven weeks.
The Bloomberg report highlighted that smaller, less liquid tokens have been hit even harder. A MarketVector index tracking the bottom half of the top 100 digital assets shows a staggering 70% decline this year. The current instability follows a liquidation cascade in early October, where about $19 billion in levered bets were wiped out, partly triggered by market volatility following former US President Donald Trump's tariff threats.
Why Liquidation Data and Macro Factors Matter
Liquidation events are critical for traders to gauge systemic leverage and risk appetite. However, industry insiders caution that the data might be incomplete, as exchanges often restrict the full information they share. Beyond internal market mechanics, broader macroeconomic shifts are applying significant pressure.
Sean McNulty, APAC derivatives trading lead at FalconX, described it as a "risk off start to December." He pointed to meager inflows into Bitcoin exchange-traded funds (ETFs) and a lack of dip buyers as major concerns. "We expect the structural headwinds to continue this month. We are watching $80,000 on Bitcoin as the next key support level," McNulty stated.
Global monetary policy is a central focus. Karim Dandashy, an OTC trader at Flowdesk, noted that investors are closely watching the Federal Reserve's and Bank of Japan's next moves. The BOJ's hints at a potential rate hike have already impacted Japanese stocks and the yen. Meanwhile, US spot Bitcoin ETFs saw only a modest $70 million inflow last week, following massive outflows of roughly $4.6 billion over the previous month, with the iShares Bitcoin Trust experiencing a five-week withdrawal streak.
Corporate Moves and Regulatory Warnings Add to Pressure
Adding to the market's anxiety, Michael Saylor's MicroStrategy Inc. took steps to calm fears about its massive Bitcoin holdings. The company created a $1.4 billion reserve to fund future payments, aiming to avert a scenario where it might be forced to sell part of its roughly $56 billion crypto stash if prices keep falling. Its shares fell over 10% on Monday.
On the regulatory front, fresh warnings emerged. S&P Global Ratings downgraded its assessment of Tether's (USDT) stability, warning that falling Bitcoin prices could leave the stablecoin undercollateralized. Furthermore, the People's Bank of China reiterated warnings about the risks of virtual currencies, including stablecoins, urging a crackdown on illegal activities.
Despite the gloom, some see a potential turnaround. Flowdesk's Dandashy suggested there might be "a light at the end of the tunnel" as the year concludes, with economic data being the key determinant for a year-end risk rally. The week ahead, filled with crucial US economic data, is set to shape expectations for the Fed's interest rate trajectory into 2026, ultimately influencing the crypto market's path forward.
