Crypto Sell-Off Defies Bullish Macro Trends, Puzzles Experts

According to CoinGecko data, the cryptocurrency market’s early December drop saw Bitcoin (BTC) fall below $84,000, dragging the total market capitalization beneath the $3 trillion threshold. For industry observers, the timing is particularly perplexing. The sell-off is occurring against a backdrop of record-setting performances in traditional equities, gold, and other risk assets, creating what Jeff Dorman, Chief Investment Officer at Arca, called “one of the strangest crypto sell-offs ever” in a December 2 social media post.

Dorman highlighted the powerfully bullish conditions on Wall Street: an expected Federal Reserve pivot to interest rate cuts, the conclusion of quantitative tightening, strong consumer spending, and growing corporate earnings. These macro tailwinds have propelled traditional assets to repeated peaks. Simultaneously, the typical negative catalysts for crypto—such as fears of MicroStrategy (MSTR) selling its Bitcoin holdings or concerns over Tether’s solvency—have not materialized. “MSTR isn’t selling, Tether isn’t insolvent… the Fed isn’t turning hawkish,” Dorman noted, debunking common bearish narratives.

Dorman’s analysis points to a structural issue. While institutional adoption advances, new capital is not yet flowing into crypto through traditional investment channels. “Crypto-native investors are exhausted, and new money isn’t coming in,” he wrote. In a separate blog post, the Wall Street veteran suggested selling pressure may originate from traditional finance portfolios, where crypto holdings are the first to be liquidated during adjustments—a less transparent flow to the crypto community.

The sell-off was exacerbated by a shock from the Bank of Japan (BOJ), which on December 1 signaled a potential interest rate hike. As trading firm Wintermute explained, this news threatened the long-standing yen carry trade, triggering a significant deleveraging event that hit crypto markets during a period of thin holiday liquidity. This external macro event amplified the downward pressure.

Beneath the surface volatility, however, some market mechanics show signs of improvement. Wintermute’s analysis indicates that excessive leverage has been substantially reduced. The total perpetual open interest across crypto markets has fallen from approximately $230 billion in October to around $135 billion. Furthermore, funding rates have normalized, and spot trading now represents a larger share of overall volume. According to the firm’s experts, these developments help create a healthier market foundation, positioning the sector for potential stability if broader macro conditions improve.

Despite the current pessimism, some analysts foresee a near-term recovery. Fundstrat’s Tom Lee, in a CNBC interview, predicted that Bitcoin could reach a new all-time high by the end of January. His forecast hinges on expected dovish Federal Reserve policy and a recovery in equity markets. Lee compared the current market environment to a deleveraging washout, similar to past events, suggesting the painful phase may soon conclude.

The central question for the market now is whether this cleaner positioning—with reduced leverage and more spot-driven activity—combined with potential favorable macro shifts will finally allow cryptocurrencies to decouple from their recent divergence and join the broader asset rally. For now, the market awaits clearer signs of renewed capital inflows. As reported by CryptoPotato, the convergence of these factors will determine if the puzzling sell-off was merely a temporary dislocation or a sign of deeper structural challenges in capital flow between traditional and crypto finance.