Policy pressure combined with technical risks, Bitcoin experienced a cliff-like drop at the beginning of the month

December’s market opening was not as mild as the market expected. Due to the dual impact of China’s strengthened policy stance and deteriorating liquidity, mainstream cryptocurrencies such as Bitcoin and Ethereum experienced an unexpected wave of selling during Asian trading hours.

China Reaffirms Anti-Virtual Currency Stance Policy Risks Reignite

A clear signal was released during the interdepartmental coordination meeting held on Friday. Regulatory agencies including the People’s Bank of China, the Ministry of Public Security, and the Cyberspace Administration of China collectively stated that virtual currency trading activities are illegal financial services and expressed vigilance over the recent surge in speculative trading. This move directly triggered a risk-off reaction in the market.

Officials specifically pointed out that stablecoins pose risks of money laundering and illegal cross-border capital flows, taking a more hardline stance than before. Despite China’s firm attitude, Hong Kong SAR maintains an independent regulatory framework, and the government’s attitude towards the crypto industry is relatively friendly, creating a stark contrast between the two regions’ policies.

Market Drops in Response, Leverage Positions Collapse on a Large Scale

Policy risks have not been fully digested, and technical breakdowns followed immediately. Bitcoin suddenly plunged during Asian morning hours, dropping rapidly from a volatile zone around $91,500 to $86,950, a nearly 5% decline. Latest data shows BTC trading around $87.91K, with a 24-hour change of +0.84%, but market volatility remains significant.

Ethereum fell even more sharply, down 5%, marking its worst monthly performance since February, with an overall decline of 22% in November. Other major assets such as Solana (SOL), Dogecoin (DOGE), and Ripple (XRP) also suffered, each recording declines of over 4%.

Liquidation Wave Affects 180,000 Traders, Liquidity Crisis Imminent

The biggest victims of this rapid decline are leveraged traders. Over the past 24 hours, more than 180,000 traders faced forced liquidations, with total liquidation exceeding $539 million, of which over 90% were long positions. According to CoinGlass data, most liquidations occurred in the final hours of the crash, indicating that traders were optimistic about the market’s outlook but were caught off guard by this sudden wave of selling.

Analyst Kobeissi Letter pointed out that this decline was not triggered by obvious fundamental factors but was instead caused by a domino effect from a sudden surge in sell orders, compounded by a large number of leveraged positions being forcibly liquidated, further amplifying downward momentum. The firm believes that the current crypto market still maintains a structural bear market characteristic.

Analyst “Sykodelic” remains relatively optimistic, viewing this as a correction opportunity at the beginning of the month, and notes that the CME gap has been filled. The $400 million liquidation of long positions is essentially a necessary process to “sweep out liquidity downward.”

Yearn Finance Hacked, DeFi Security Risks Exposed

Adding to the woes, internal risks within the DeFi ecosystem are also exploding. Yearn Finance’s yETH liquidity pool was attacked, with hackers exploiting a vulnerability to mint a large amount of yETH tokens in a single transaction, draining the liquidity pool and profiting approximately 1,000 ETH (worth about $3 million). According to blockchain security firm PeckShield, the protocol suffered a loss of $9 million, and the stolen funds have been transferred through mixing services.

This incident once again exposes the contradictions within the crypto ecosystem: institutional funds pouring in to inflate asset valuations, while underlying security infrastructure fails to keep pace. The attack occurred just days after South Korea’s largest exchange Upbit experienced a hack involving millions of dollars, raising concerns about systemic risks.

Institutional Withdrawal Signals Clear, ETF Redemptions Hit Record

More noteworthy is the capital movement at the institutional level. The US-listed Bitcoin spot ETF recorded a net outflow of $3.48 billion in November, the second-largest redemption in history. Ethereum ETF outflows also set a record, reaching $1.42 billion. This large-scale institutional redemption directly reflects a decline in confidence in the market’s outlook.

Bitcoin posted its worst monthly performance since 2018, falling 17.49% in November—compared to a 36.57% drop in 2018. Ethereum’s 22% decline set a record since February.

Short-term Risks and Long-term Concerns Coexist

Sean McNulty, Head of Derivatives at FalconX Asia-Pacific, believes the December market is shrouded in risk aversion. “The biggest concern is the lack of ETF inflows, which leaves little support from low-level buyers.” He considers $80,000 as the next key support level for Bitcoin.

Federal Reserve policy expectations are also playing an implicit role. President Trump recently announced the confirmed candidate for the next Fed Chair, explicitly expecting them to push for a rate cut cycle. This week, US economic data will provide key guidance for Fed decisions, and market expectations regarding interest rate hikes or cuts will continue to influence risk asset performance.

In the short term, policy uncertainty, technical risks, and institutional withdrawals will continue to test market participants’ risk tolerance.