Is a December Liquidity Shock the Last Obstacle Before a 2026 Crypto Rally?

TLDR

• Japan’s expected rate hike could trigger rapid crypto and stock liquidations worldwide.
• Past BOJ hikes caused Bitcoin drops of 25–26% within weeks, showing market sensitivity.
• Short-term selling removes weak positions, helping markets form a base for recovery.
• Global easing and Japan’s stimulus may support a strong 2026 crypto market rebound.

Bitcoin and the crypto market may face a short-term liquidity shock in December ahead of a potential 2026 rally. 

Market participants are closely watching the Bank of Japan’s (BOJ) upcoming meeting on December 18-19, where interest rates are expected to rise. Japan’s long-standing low rates have supported the yen carry trade, which encouraged investors to borrow cheaply and invest in assets like crypto and stocks.

Rising borrowing costs could force investors to repay yen-denominated loans, prompting asset sales. 

Historical examples highlight this risk: after a rate hike in July 2024, Bitcoin fell roughly 26%, and a January 2025 hike caused about a 25% decline. These patterns suggest December may bring sharp corrections, high volatility, and rapid liquidations.

Yen Carry Trade and Market Volatility

The yen carry trade has long influenced global financial flows. Investors borrow yen at low rates and invest in higher-yielding assets abroad. 

When borrowing becomes more expensive, forced selling often occurs, impacting both crypto and traditional markets.

A tweet from @BullTheoryio explains,

This forced selling creates sudden price swings, especially in highly leveraged crypto markets.

Past rate hikes show how quickly markets can respond. BTC dropped around 26% in July 2024 and about 25% in early 2025 following BOJ rate increases. 

These examples indicate that the December event could cause immediate volatility rather than gradual declines.

Traders can view these dynamics as a market reset. Short-term liquidations remove weaker positions, reducing selling pressure. 

Once panic selling subsides, a base can form, preparing markets for potential recovery and upward momentum.

Short-Term Shock and Longer-Term Opportunities

Japan’s current economic situation limits prolonged tightening. The country reported a GDP contraction of -0.6%, below the expected -0.4%, signaling weakness. 

To support markets, the Japanese government announced a ¥17 trillion stimulus program, including bond purchases to stabilize liquidity.

This intervention helps offset initial selling pressure. After liquidations, weaker positions are removed, and market conditions begin to stabilize. Reduced selling allows a base to form, creating opportunities for renewed price growth.

Global policy easing further supports potential recovery. The US, China, and Canada are already implementing measures to increase liquidity, which could bolster markets internationally. 

The combination of Japan’s stimulus and worldwide easing may set favorable conditions for cryptocurrencies in 2026.

While December may bring temporary turbulence, the liquidity shock could be the final hurdle before markets recover. 

Monitoring BOJ decisions and global liquidity trends will be critical for anticipating price movements and positioning for a potential rally.

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