The cryptocurrency market witnessed another steep decline, with Bitcoin experiencing a "flash crash" at the start of December. On December 1, Bitcoin's price plummeted below $87,000 in early trading, extending losses to 5.9% intraday. By 18:24, Bitcoin was trading at $86,680, marking a 5.14% drop over 24 hours and nearly 20% monthly decline.
This downturn extends a weeks-long sell-off in virtual assets. Since hitting an all-time high of $126,300 in early October, Bitcoin has erased all its yearly gains, with cumulative losses exceeding 31%.
The broader crypto market followed suit. Ethereum fell 5.67% to $2,839, while Ripple dropped 6.9% to $2.04. Binance Coin and Dogecoin also declined by 6.03% and 7.98%, respectively.
Shen Xiayi, Vice President of the Research Institute at Lianxun Securities, attributed the crash to macro, structural, and sentiment-driven pressures. He highlighted crypto markets' acute sensitivity to external liquidity shifts and inherent fragility from high leverage.
Key drivers include tightening macro liquidity. Despite the Fed halting balance sheet reduction, delayed rate-cut expectations and a $200 billion liquidity drain from the U.S. Treasury General Account (TGA) during the government shutdown have raised funding costs, disproportionately impacting volatile assets.
Structurally, weak buying support persists. After $19 billion in leveraged positions were liquidated in early October, U.S. spot Bitcoin ETFs recently saw over $1 billion in weekly net outflows. Shen warned that without fresh capital, breaching critical technical levels could trigger cascading liquidations, creating a "decline-liquidation-further decline" spiral.
Regulatory headwinds compounded the sell-off. China's reiterated ban on crypto-related financial activities and the EU's strict MiCA stablecoin rules have dampened sentiment. The extreme crash of Trump-linked tokens further eroded speculative confidence, accelerating capital flight from major cryptocurrencies.
Leverage amplified volatility. Coinglass data showed over 190,000 positions liquidated, totaling $553 million (¥3.912 billion), with long positions accounting for $480 million. Liquidations continued through the day.
Researcher Du Tongtong noted that 10x leverage can wipe out margins with just a 10% adverse move. "Price 'wicking' during volatility can instantly trigger liquidations, while concentrated unwinding worsens sell-offs, creating systemic risks," she cautioned, adding that yield-chasing investors often neglect risk management.
Industry experts expect short-term pressure, with medium-term trends hinging on liquidity. Globally, regulators are institutionalizing oversight, with China maintaining a firm stance against crypto trading. Du warned retail investors against high-leverage "gambling," urging awareness of policy risks.
As Monday's trading looms, FalconX's Asia-Pacific derivatives head Sean McNulty noted, "December's risk-off start reflects concern over absent Bitcoin ETF inflows and dip buyers. We expect persistent headwinds, watching the $80,000 support closely." Upcoming U.S. economic data will shape Fed rate expectations, with President Trump's upcoming Fed chair nominee expected to advocate rate cuts.