As the Federal Reserve shifts its policy stance, the Bank of Japan's signals of rate hikes have triggered a liquidity crisis in the crypto market

On December 1st, the cryptocurrency market experienced an unexpected sharp decline. Bitcoin dropped over 5% intraday, breaking the $90,000 level, with a low of $85,689; Ethereum (ETH) fell 5.9%, also breaking below $3,000. According to Coinglass statistics, approximately 180,000 traders were liquidated within 24 hours, totaling $537 million. ZEC experienced the most severe decline, at 15.51%, while HYPE and DOGE fell by 9.84% and 6.2%, respectively.

On the surface, the recent 90% probability of a rate cut by the Federal Reserve should be bullish for the crypto market, but the market's actual reaction has been opposite. This reflects a liquidity crunch behind the scenes. Derivatives trading institutions believe that Bitcoin ETF fund inflows are weak and that there is a lack of institutional support at lower price levels.

**Bank of Japan Rate Hike Expectations — The Hidden Market Killer**

On December 1st, Bank of Japan Governor Kazuo Ueda issued the strongest policy signal yet: the central bank will weigh the necessity of a rate hike at the upcoming monetary policy meeting (December 18-19). The market responded sharply. According to overnight index swap pricing, traders now see a 76% chance of the BOJ raising interest rates this month (up from 58% the previous day), with the probability of a rate hike before the end of the year approaching 94%.

Following the BOJ rate hike expectations, immediate chain reactions appeared: the 10-year Japanese government bond yield rose to 1.877%, USD/JPY fell to 155.37, the Japanese stock market ended its four-day winning streak and fell below the 50,000-point level, closing down 1.89%.

**The Complete Chain of Liquidity Deterioration**

The dangers of the BOJ's rate hike signals go beyond this. A weaker yen will further push up Japanese inflation, prompting the government and the central bank to reach a consensus on raising interest rates. As Japan's monetary policy becomes politicized, overseas capital will accelerate its return to domestic markets, and the rising yields driven by BOJ rate hikes will attract Japanese financial institutions to sell large amounts of U.S. Treasuries and buy Japanese government bonds to suppress yields. This series of liquidity shifts collectively points to systemic risks in the crypto market — the threat of USD liquidity being absorbed.

Meanwhile, the personnel change at the Federal Reserve Chairmanship has also increased uncertainty. Trump has confirmed the new Fed Chair candidate, with market expectations that Kevin Hasset will succeed current Chair Powell (term until May 2026). Political interference in the Fed's independence adds additional pressure on the dollar — the USD index has fallen accordingly, gold has risen to $4,256, hitting a two-week high, and silver is approaching its all-time high of $58.0.

**Technical Analysis and Future Outlook**

Bitcoin's daily chart shows that after breaking below $90,000, bearish sentiment remains strong, but the overall trend is still in a rebound cycle. The $85,000–$86,000 area constitutes a key support level; if it can hold effectively, there is still potential to challenge resistance levels at $90,000 and even $95,000.

The impact of liquidity risk on the crypto market is expected to be limited. As the BOJ rate hike expectations are gradually priced in, market focus will shift to whether actual rate hikes can meet expectations. If the rate hike magnitude falls short of market expectations, Bitcoin is expected to continue its rebound pattern, and mainstream crypto assets like Ethereum (ETH) may also follow suit. Overall, the current sharp decline in cryptocurrencies is more due to liquidity structure adjustments rather than deteriorating fundamentals, and a rebound opportunity is worth looking forward to.