Bitcoin and Ethereum plummet amid mass sell-offs

Monday started with a bang for the cryptocurrency market. Bitcoin and Ethereum fell again, continuing the negative trend from November. In the first hours of December, a new wave of sales began to put pressure on the entire market.

Bitcoin was trading around $43,05, which is a drop of nearly 8% for the day. Ethereum lost even more, about 10%, to $2,732. Solana shares also fell by about 10%, to $124. According to market data, the sharp increase led to the liquidation of about $400 million in just an hour on various cryptocurrency exchanges. For high-leverage traders, this was a particularly painful moment.

China's warning intensifies the pressure

The pressure on cryptocurrencies intensified on Saturday when the People's Bank of China issued a new warning about illegal activity related to digital assets. This followed a coordination meeting on November 28, which was attended by 13 state agencies. Chinese authorities reiterated that virtual currencies have no legal status and any activity involving cryptocurrencies is considered illegal financial activity.

Stablecoins are receiving particular attention. Regulators have warned that many of them do not meet customer identification and anti-money laundering requirements. This signal further shook the market, which is already sensitive to any news from China, one of the largest economies in the world and a former center for trading and mining.

The Bank of Japan increases volatility

Japan dealt an additional blow to risky assets, including cryptocurrencies. The Governor of the Bank of Japan, Kazuo Ueda, hinted that a rise in the key interest rate could be achieved at the December meeting. This is a sensitive topic, as Japan has maintained ultra-low interest rates for a long time.

The yield on 10-year Japanese government bonds reached 1.877%, the highest since 2008. This increased the reluctance to take risks in the global markets, as the higher bond yields made some investors more cautious and forced them to give up more volatile assets such as cryptocurrencies.

High leverage and fear of more liquidations

Ben Emons, founder of Fedwatch Advisors, told CNBC that investors remain "nervous" after the recent corrections. He notes that the leverage levels on some platforms reach 200 times more, which makes the market extremely fragile. According to him, with such leverage, even a small movement of the price can trigger a chain reaction of forced position closures.

The total volume of leverage positions in perpetual futures is estimated at approximately $787 billion, and in ETF products - at approximately $135 billion. This means that high-leverage derivatives remain a weak link. The market remains vulnerable to further waves of liquidations if prices continue to fall.

After a tough November, another blow at the beginning of December

The drop on Monday followed an already strong sell-off in November. Bitcoin lost about 21% of its value in one month - its biggest monthly drop since 2022. This undermined the confidence of some investors who were expecting a calmer end to the year.

At the same time, broader macroeconomic concerns remain in the background. Markets are closely watching the upcoming meeting of the Federal Reserve (FED) on December 9-10, where a possible reduction in interest rates will be discussed. Some investors fear that expectations of "easy money" have turned out to be too optimistic.

Additional tension is created by the debate regarding the valuation of artificial intelligence companies. Some analysts believe that the shares of companies developing artificial intelligence and related technologies have reached excessively high levels. With the increase in risks in this segment, some investors are simultaneously reducing their exposure to cryptocurrencies, which continue to behave more like high-risk technology assets rather than "digital gold".