Bitcoin Whipsaw Triggers $575M Liquidations Amid BOJ Rate Hike

The latest episode of Bitcoin volatility began with a bullish catalyst: softer-than-expected U.S. Consumer Price Index (CPI) data. With headline and core inflation coming in at 2.7% and 2.6% respectively—below the 3% forecast—the initial market reaction propelled Bitcoin toward the $90,000 mark. However, this rally proved short-lived. Within hours, a sharp sell-off erased the gains, triggering a cascade of liquidations across the crypto derivatives market. According to data from CoinGlass, the total crypto market saw $575 million in liquidations over a 24-hour period, with a significant majority—$368 million—coming from leveraged long positions betting on higher prices.

Bitcoin itself accounted for $202 million of these liquidated positions, with $119 million stemming from long bets. Analysis from on-chain data provider Velo reveals a key distinction in this sell-off’s mechanics. Unlike a previous downturn driven primarily by spot market sellers, this reversal was fueled by derivatives traders engaging in profit-taking. This shift indicates that the sell pressure originated not from a fundamental loss of conviction among long-term holders, but from tactical moves within the highly leveraged futures and options markets. Despite the washout, the price action found notable demand in the $85,000 to $81,000 range, suggesting a zone of strong buyer interest. Bitcoin subsequently recovered some ground, trading around $88,100 according to CoinGecko, up nearly 1% over the past day.

Simultaneously, a major structural shift in traditional finance emerged from Japan, adding a significant macro overlay to crypto’s volatility. The Bank of Japan (BOJ) raised its interest rate by a quarter point, marking its first hike in 30 years and decisively ending an era of ultra-low rates. This historic move carries profound implications for global market liquidity, primarily through its impact on the yen carry trade. For decades, investors have borrowed cheap Japanese yen (JPY) to invest in higher-yielding risk assets worldwide, including cryptocurrencies. This trade has functioned as a key lubricant for global risk appetite.

The BOJ’s rate hike threatens to unwind this longstanding dynamic. As borrowing costs in Japan rise, the incentive to engage in the yen carry trade diminishes. The subsequent unwinding of these positions—where investors sell risk assets to repay yen-denominated loans—could halt a significant source of liquidity that has ‘greased’ risk assets for years. According to a previous Decrypt report, this development is likely to add sustained pressure not only on crypto but on other risk-sensitive assets globally, creating a less favorable liquidity backdrop.

Beneath these macro and micro catalysts lies a persistent condition within the crypto ecosystem: elevated leverage. Data from Coinalyze indicates that optimistic long positions have been a major contributor to the recent liquidation events. This pattern is not isolated; December has already witnessed four separate days where total crypto market liquidations surpassed the $500 million mark, highlighting the market’s fragility when highly leveraged positions meet sudden price swings.

Looking forward, traders face a period where volatility is likely to be amplified. The approaching holiday season traditionally correlates with shrinking liquidity as participants reduce trading activity. This lower spot market demand, combined with defensive positioning among futures and options traders, can exacerbate price movements. Nevertheless, a segment of the market remains optimistic. Traders on the prediction market Myriad, owned by Decrypt’s parent company Dastan, currently assign a 61% probability that Bitcoin’s next major move will be toward $100,000, rather than a decline to $69,000. This sentiment underscores the bifurcated outlook where structural headwinds from the BOJ and high leverage contend with persistent bullish conviction for Bitcoin’s long-term trajectory.