Why did Bitcoin drop today? The Bank of Japan's interest rate hike curse reappears, BTC falls below 89,000

Why did Bitcoin drop today? Bitcoin fell below $89,000 to $88,410, mainly influenced by three major factors: expectations that the Bank of Japan will raise interest rates to 0.75% on December 19, a 21.13% decrease in trading volume due to weekend liquidity shortages, and the technical critical support level of $86,000 being at risk. Historical data shows that every time the Bank of Japan raises interest rates, Bitcoin has dropped over 20%.

The Bank of Japan Rate Hike Curse: The Unbreakable Law of a 20% Drop in History

(Source: Trading View)

The core reason for Bitcoin’s decline today points to the Bank of Japan. The market widely anticipates that the Bank of Japan will raise rates to 0.75% at its policy meeting on December 19, which would be the highest rate since 1995. Traders expect this pattern to repeat, with analysts noting that the probability of the BOJ raising rates is as high as 91.4%. This certainty has instead triggered preemptive sell-offs.

Historical data reveals a startling pattern. Bitcoin analyst AndrewBTC posted on X forum, analyzing Bitcoin charts and noting a consistent pattern: every time the Bank of Japan raises interest rates, Bitcoin drops over 20%. After the March 2024 rate hike, Bitcoin dropped 23%; after the July rate hike, it fell 26%; most recently, after the January 2025 adjustment, it declined 31%. This regularity causes investors to exit early ahead of decisions.

Why does a rate hike by the Bank of Japan have such a huge impact on Bitcoin? The key lies in yen arbitrage trading. CEX’s Chief Marketing Officer Ignacio Aguirre explained that a strengthening yen increases the risk of closing yen arbitrage trades, which can temporarily pressure cryptocurrency valuations as leverage positions across global markets are reset. A rate hike by the BOJ will push up the yen exchange rate, raising borrowing costs and reducing investment appeal in high-risk assets.

More importantly, Japan holds the largest share of US government debt, and changes in its interest rate policy influence the global liquidity environment. When Japanese capital flow back decreases global liquidity, risk assets like cryptocurrencies are the first to be impacted. With another rate decision scheduled for next Friday, analysts believe the BOJ’s statement could trigger market volatility, potentially pushing Bitcoin down to the $70,000 support level.

Three Major Technical Warning Signs Foretelling Deeper Declines

(Source: Trading View)

The technical reasons for Bitcoin’s decline are equally severe. Crypto analyst Ali Martinez pointed out that $86,000 remains a crucial level Bitcoin needs to hold. If this support is broken, a larger correction could occur. Currently, Bitcoin trades around $88,410, only about $2,000 above this key support.

The weekly chart shows the bull market structure has been shattered. After failing multiple times to hold support above the psychological $100,000 level, its momentum has significantly deteriorated, turning that level into a strong resistance. Price has broken below previous distribution zones near the cycle high and is trending downward, with lower peaks confirming a bearish structure.

Three Major Technical Danger Signals for Bitcoin

RSI Oversold but No Confirmed Reversal: RSI at 41.34, in oversold territory but no bullish divergence, indicating selling pressure has not fully eased.

Key Support at Risk: If $86,000 is broken, the next support is at $70,000; a further break could target $53,000.

Declining Volume: Daily trading volume fell 21.13%, indicating weak buying interest and difficulty supporting a rebound.

The actual profit and loss indicator for holding 1-3 months of BTCUSD has reached the bear market levels of July 2022, indicating a potential capitulation in the market. This technical setup suggests Bitcoin will struggle to break free from downward pressure in the short term, and investors should beware of further declines.

Weekend Liquidity Drought Worsens Downtrend

The immediate reason for Bitcoin’s fall today is weekend liquidity shortages. Over the past 24 hours, the total crypto market cap approached $3.15 trillion, down about 0.8%, with trading volume around $89 billion, reflecting typically lower liquidity on Sundays. During weekends, institutional traders rest, and retail-dominated markets lack depth, making any sell-off prone to exaggerated declines.

Overall market sentiment remains weak. Ethereum trades near $3,104, performing better on the weekly chart than Bitcoin but still down for the day. Solana, XRP, Dogecoin, and Cardano’s ADA all declined, with continuous double-digit drops over the past month, highlighting ongoing weakness among mainstream altcoins. Bitcoin’s market dominance hovers around 57%, indicating investors remain cautious.

The market appears to pause in anticipation of a series of upcoming macroeconomic data releases. In the US, investors will closely watch employment indicators—including unemployment rate, ADP employment data, weekly initial jobless claims—as well as November inflation data, December PMI preliminary figures, and speeches by Federal Reserve officials. These data points will provide clues on interest rate directions and directly impact the performance of risk assets.

Currently, the cryptocurrency market remains range-bound with low trading volume, limited market confidence, and traders awaiting clearer signals from upcoming US data and central bank decisions.