TOKYO / LONDON (IT BOLTWISE) – Bitcoin has seen a dramatic decline to $85,000, raising questions about the stability of the crypto market. The recent downward move was triggered by a combination of global macroeconomic risks, unwinding of leveraged positions and thin liquidity. Market observers are wondering whether the sell-off has already ended or whether further losses are imminent.
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Bitcoin recently experienced a notable decline to $85,000, attracting the attention of investors and analysts alike. This development is the result of a complex mix of global macroeconomic factors affecting the crypto market. Particularly noteworthy is the role of the Bank of Japan, whose expected interest rate hike has sent markets into turmoil. Japan has traditionally played an important role in the global risk market, particularly through the yen carry trade, in which investors borrow cheap yen to invest in riskier assets such as stocks and cryptocurrencies.
The impending interest rate hike in Japan could significantly impact this trade as rising interest rates reduce the incentive for the carry trade. This leads to investors selling risky assets to pay off their yen liabilities. Historically, Bitcoin has responded to previous interest rate hikes by the Bank of Japan with significant price losses. In the last three cases, the Bitcoin price fell by 20 to 30 percent in the weeks following the decision. This historic reaction was already priced in by the markets before the official announcement, which put further pressure on the Bitcoin price.
In addition to developments in Japan, US economic data also contributed to uncertainty. Although the Federal Reserve recently cut interest rates, future interest rate policy remains unclear. This uncertainty is impacting Bitcoin as the cryptocurrency is increasingly traded as a macroeconomically sensitive asset. Persistently high inflation and expected weakness in the labor market are making it difficult for markets to assess the Fed’s next steps. This uncertainty has reduced speculative demand for Bitcoin and caused short-term traders to retreat.
Another factor that has weighed on the Bitcoin price is the liquidation of leveraged positions. When Bitcoin fell below $90,000, over $200 million in leveraged long positions were liquidated in a matter of hours. These automatic sales added to the downward pressure and created a vicious cycle of further liquidations. The situation was exacerbated by the sale of Bitcoin by Wintermute, one of the crypto industry’s largest market makers. Wintermute sold over $1.5 billion worth of Bitcoin to reassess risks and offset losses in derivatives markets.
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