Bitcoin Plunges Below $87K as Japanese Bond Yield Spike Sparks $150B Crypto Wipeout
A sudden surge in Japanese government bond yields triggered a global risk-off move, exposing dangerously thin liquidity in the crypto markets and leading to a multi-billion dollar liquidation event.
Introduction: A Perfect Storm of Macro Angst and Market Fragility
In a sharp reversal during early Asian trading hours on December 1, 2025, the price of Bitcoin (BTC) plunged nearly 5%, breaking below the $87,000 support level. This dramatic move erased recent gains and catalyzed a broad market sell-off, wiping approximately $150 billion from the total cryptocurrency market capitalization according to CryptoSlate data.
The immediate catalyst was a significant spike in Japanese government bond (JGB) yields, which rattled global risk assets. However, a deeper analysis reveals this was more than a simple reaction to macroeconomic news. The selloff was severely exacerbated by a critical underlying condition: a profound lack of market liquidity. Data from 10x Research indicated the crypto market had just experienced one of its lowest-volume weeks since July 2025, leaving order books dangerously thin and incapable of absorbing institutional selling pressure. This combination—an external macro shock meeting an internally fragile market structure—transformed what might have been a routine technical correction into a full-blown liquidity event.
The Liquidity Vacuum: How Low Volume Amplified the Selloff
Beneath the surface of Bitcoin’s multi-trillion dollar market cap, liquidity had quietly evaporated in the days leading up to the drop. While Bitcoin’s market capitalization had risen 4% week-over-week, trading activity told a different story.
Data from 10x Research indicates that average weekly volumes across the crypto market plummeted to $127 billion. A closer look reveals even steeper declines for major assets:
- Bitcoin volumes were down 31% at $59.9 billion.
- Ethereum (ETH) volumes collapsed by 43%.
This lack of participation created a market environment where large orders could not be executed without significantly impacting price. Timothy Misir, Head of Research at BRN, characterized the event to CryptoSlate not as a "measured correction" but as a "liquidity event driven by positioning and macro repricing." He noted that momentum "abruptly flipped" after a messy November, creating a deep gap lower that flushed leveraged long positions. The shallow market depth meant a move that might have been contained to 2% during a period of healthy volume spiraled into a 5% rout during an illiquid trading window.
A Tale of Two Leverage Profiles: Bitcoin Cools While Ethereum Heats Up
The selloff exposed a stark and potentially dangerous divergence in how traders were positioned across the two largest cryptocurrencies, Bitcoin and Ethereum.
Analysis from 10x Research showed that Bitcoin futures open interest decreased by $1.1 billion to $29.7 billion in the lead-up to the decline. Concurrently, funding rates rose only modestly to 4.3%, placing them in the 20th percentile over the past 12 months. This data suggests Bitcoin traders were actively de-risking and unwinding exposure, leaving the market in a relatively "cool" state before the plunge.
In contrast, Ethereum presented a conflicting and riskier picture. Despite network activity being described as "essentially dormant," with gas fees sitting in the 5th percentile of historical usage, speculative activity in derivatives surged. ETH funding rates jumped to 20.4%, placing them in the 83rd percentile for the year, while open interest climbed by $900 million. This disconnect—where Ethereum is seeing frothy speculative demand in futures markets despite low on-chain utility—suggests a significant mispricing of risk that left the asset particularly vulnerable to a deleveraging event.
The Macro Trigger: Japan's Bond Market Upheaval and the Carry Trade
While poor market structure provided the fuel, the spark originated in Tokyo. Yields on Japanese government bonds surged, with the 10-year JGB yield climbing to 1.84%, a level not seen since April 2008. Meanwhile, the two-year yield breached 1% for the first time since the 2008 Global Financial Crisis.
These dramatic moves repriced expectations for the Bank of Japan's (BOJ) monetary policy, with markets increasingly anticipating an interest rate hike as soon as mid-December. This development directly threatens the foundational "yen carry trade," a strategy where global investors borrow Japanese yen at historically low rates to fund investments in higher-yielding risk assets worldwide, including cryptocurrencies.
Arthur Hayes, co-founder of BitMEX, noted that the BOJ has "put a December rate hike in play," an action that strengthens the yen and raises the cost of capital for international speculators. The resulting tightening of global macro liquidity creates headwinds for high-beta assets like crypto. BRN's Misir pointed to gold's concurrent rally above $4,250 as further evidence that traders are hedging against persistent inflation or fiscal risks, noting that "when macro liquidity tightens, crypto... often retests lower bands first."
On-Chain Reality and Retail Distress
The fallout from the selloff has altered Bitcoin's technical and on-chain landscape. The price decline pushed BTC below the "short-term holder cost basis," a key on-chain metric that often distinguishes between healthy bull market pullbacks and more severe corrections.
On-chain flow analysis from BRN paints a picture of distribution. Accumulation by long-term holders and large wallets (often called "whales") decelerated noticeably. In their place, retail cohorts—addresses holding less than 1 BTC—stepped in to buy at what are described as "distressed levels." While this indicates underlying retail demand, the absence of concurrent whale accumulation suggests larger, more sophisticated investors are waiting on the sidelines for potentially lower prices.
Misir summarized this dynamic: "The main takeaway is that supply has shifted closer to stronger hands, but supply-overhang remains above key resistance bands." A potential silver lining exists in the form of available capital; stablecoin balances on exchanges have risen, indicating traders have dry powder ready to deploy. However, with Bitcoin futures traders unwinding positions and U.S.-based spot ETFs inactive during the weekend selloff, this capital remained largely sidelined.
Strategic Conclusion: Navigating a Market at an Inflection Point
The events of December 1, 2025, serve as a stark reminder that cryptocurrency markets do not operate in a vacuum. They are deeply interconnected with global macro-financial flows, particularly mechanisms like the yen carry trade. The $150 billion wipeout was not merely about Bitcoin or crypto-specific narratives but was fundamentally triggered by a repricing of capital costs in one of the world's largest debt markets.
The incident also highlighted two critical vulnerabilities within the crypto ecosystem itself:
- Structural Fragility: Periods of extremely low trading volume create a brittle market structure prone to violent dislocations.
- Asymmetric Risk: Divergent leverage profiles between major assets like Bitcoin and Ethereum can create localized pockets of extreme risk, even when broader sentiment appears calm.
Looking ahead, market participants should monitor several key factors:
- Bank of Japan Policy: Any confirmation of a December rate hike could further pressure risk assets.
- U.S. Economic Data: Upcoming employment and ISM manufacturing data present additional "event risk" that could strain liquidity.
- Market Depth: A sustained recovery in trading volume is necessary to restore healthy market function.
- On-Chain Support: The market is now looking toward the mid-$80,000s as a zone for structural support. A failure for Bitcoin to reclaim the low-$90,000s could indicate further downside toward the low-$80,000s as macro pressures continue.
Ultimately, while on-chain data shows resilient retail buying at lower levels, true conviction from institutional players remains pending. The path forward will likely be determined by whether global macroeconomic conditions stabilize or if further tightening unravels more of the speculative leverage built across digital asset markets.