On December 1st, the highly anticipated closing month of the crypto market kicked off with a brutal opening setback.

On Sunday night Beijing time, Bitcoin plunged without resistance from above $90,000, hitting a low of $85,600 at one point, with a daily drop of over 5%. The altcoin market was even more severely affected, with the fear index soaring instantly.

Bank of Japan

The immediate trigger is a shocking rumor that has gone viral on social media: Federal Reserve Chairman Powell will announce his resignation on Monday evening.

But this is just the surface.

In this information cocoon, traders are terrified by the political gossip from Washington, but they overlook the truly lethal danger signals coming from Tokyo. This is not just an emotional outburst triggered by rumors, but a textbook-level global macro deleveraging.

The real power of short selling comes from the Bank of Japan, which is quietly closing the door to the world's largest free ATM.

The Smoke Bomb of Washington: The Nervous Bird of a Fragile Market

First, we need to break down the direct catalyst that led to the market crash.

Regarding the news of Powell's resignation on Monday night, it currently appears to be a typical FUD rumor. Powell's term does not end until 2026, and according to the official schedule, he will indeed give a public speech this Tuesday. The likelihood of a chairman, who is about to deliver a regular speech, resigning suddenly is extremely low.

Bank of Japan

But the question is, why did the market believe it?

Because the soil of rumors is real. This soil is the central bank political game of the Trump 2.0 era.

Just this morning, President-elect Trump publicly stated that he will soon announce his nominee for the next chairman of the Federal Reserve. Currently, the frontrunner is Kevin Hassett, the former economic advisor to the White House and a well-known dove.

This has sparked a deep anxiety on Wall Street: the narrative of the shadow Federal Reserve Chair is coming true.

The market is not worried about Powell actively resigning, but rather about him being undermined or pressured by political forces. If Hassett or other Trump loyalists are established as successors in advance, then Powell's policy influence during the remainder of his term will be greatly diminished.

The fear of this power vacuum, combined with the low liquidity over the weekend, turned a poor rumor into a nuclear weapon for short sellers.

Tokyo's Real Bomb: A Super Shrinkage Not Seen in 17 Years

If the rumors in Washington are like the wind, then the bond market in Tokyo is truly the one in motion.
While we are focused on refreshing Twitter for Powell's news, a quiet tsunami is happening in the Japanese financial market: the yield on Japan's 10-year government bonds has surged to around 1.1%, reaching its highest level since 2008.

This is not just a number, it is the end of an era.

1. Inflation cannot be suppressed any longer. Data released over the weekend shows that Tokyo's core CPI in November rose by 2.8% year-on-year, far exceeding market expectations. This is the leading indicator that the Bank of Japan values most. The data indicates that Japan's inflation has shifted from being input-driven to being endogenous, and the central bank no longer has any reason to maintain an accommodative policy.

2. The Hawkish Ultimatum Despite the presence of doves like Toyomi Nakamura calling for caution, the market has heard louder hawkish voices. The market is currently betting that the probability of the Bank of Japan raising interest rates on December 18 to 19 has soared to over 60%.

This means that Japan, the only country in the world that has implemented negative interest rates and zero interest rates for decades, is being forced to move towards normalization.

In-depth Analysis: The End of Yen Arbitrage Trading

Many crypto investors do not understand why interest rate changes far away in Tokyo can cause Bitcoin to plummet by $5000 within an hour.

This involves the underlying structure of the global financial market - Yen Carry Trade.

To clarify this logic, we can use the familiar DeFi concept from the crypto market for an analogy.

Bank of Japan

1. The Japanese Yen is the largest stablecoin lending pool in the world. Imagine a DeFi protocol called the Bank of Japan. For decades, its lending rates have been almost 0%. For hedge fund managers on Wall Street, the optimal strategy is to maximize borrowing. They borrow massive amounts of Yen from this protocol at almost no cost and then sell it for US dollars.

2. The leverage base of global assets. Holding the exchanged US dollars, these whales are rushing towards high-yield assets:

Buy US Treasuries for a 5% risk-free return.
Buy Nvidia and enjoy the dividends of the AI bubble.
Buy Bitcoin to take advantage of the high Beta returns brought by high volatility.
This is the engine of the global bull market over the past two years: borrowing cheap money from Japan to buy risk assets in the United States. This is a leveraged structure worth trillions of dollars, and Bitcoin is just a part of this huge asset portfolio.

3. The current crisis: The agreement raised interest rates. Now, the Bank of Japan, the administrator of this agreement, suddenly signaled that inflation is too high, and borrowing rates need to be raised from 0% to 0.25% or even higher.

This triggered a chain reaction:

Rising Costs: The cost of borrowing has increased, and the previously guaranteed profit margin has shrunk.
Exchange rate risk: Because everyone is eager to buy back yen to repay debts, the yen exchange rate begins to appreciate. When investors borrowed, the exchange rate might have been 150, but when repaying, it might have changed to 145, resulting in a loss on the principal due to the exchange rate.
Forced liquidation: In order to raise money to pay off debts in yen, institutions must sell their assets—U.S. Treasuries, tech stocks, and the most liquid asset that trades 24 hours a day, Bitcoin—regardless of cost.
This is the essence of today's crash: global capital is being forced to deleverage. Bitcoin, as the canary in the coal mine for risk assets, is always the first to react to liquidity contraction.

Can the Federal Reserve's rate cut save us? 87.6% optimism and the mismatch with reality.

In the face of Japan's betrayal, the market has placed its last hope on Wall Street.

The data seems to support this optimism. According to the latest CME FedWatch Tool, the market is betting that the probability of a 25 basis point rate cut on December 10 has skyrocketed to 87.6%. Wall Street has almost bet all its chips on the "Powell will cut rates to save the market" card, believing this can offset Japan's tightening.

Bank of Japan

But this viewpoint may be overly optimistic and could even be a fatal misjudgment.

1. Structural forces are greater than cyclical forces. The Federal Reserve's interest rate cuts are a cyclical adjustment, while Japan's interest rate hikes represent a structural historical reversal. When Japanese pension funds and life insurance companies find that domestic government bond yields are approaching 1.1%, they are likely to withdraw funds from overseas back to Japan. This wave of capital repatriation is tsunami-level, and a 25 basis points cut by the Federal Reserve simply cannot stop it.

2. The strangulation of the narrowing interest rate spread in both directions The core of arbitrage trading is the interest rate spread between the US and Japan.

If the Federal Reserve cuts interest rates as scheduled (with a probability of 87.6%), the dollar yield will decrease.
If Japan raises interest rates, the cost of the yen will increase.
The result is that the interest spread is being squeezed in both directions. This not only cannot save arbitrage trading but will instead accelerate the liquidation process. Because the space for risk-free arbitrage is rapidly disappearing.
Therefore, even if the Federal Reserve really cuts interest rates, it can only calm emotions in the short term, but it cannot change the long-term, structural pump of yen capital inflow.

Conclusion: The macro double kill in December

Standing at the starting point of December, we must soberly recognize that this month is no longer merely a Christmas market, but a severe macro pressure test.
We are facing two major exams:

December 10: Can the Federal Reserve fulfill the 87.6% rate cut expectation and maintain independence under Trump's political shadow?
December 19: Will the Bank of Japan press the nuclear button to end the zero interest rate era?
Today's crash is just a rehearsal for the market's response to these two major tests.

For crypto investors, the current strategy should not be to gamble on the boring rumor of whether Powell will resign, but rather to keep a close eye on the USD/JPY exchange rate and the yield of Japan's 10-year government bonds.

As long as the yen continues to appreciate, and as long as Japanese bond yields keep reaching new highs, the global deleveraging process is not over. In the face of this massive macroeconomic meat grinder, any K-line technical analysis seems powerless.

Don't catch flying knives. Wait for the wind in Tokyo to stop, then look at the clouds in Washington.