The current correction in global financial markets and the cryptocurrency sector is driven by a combination of macroeconomic, monetary, and geopolitical changes. Bloomberg's review highlights six key drivers of the current decline.
1. The Bank of Japan's policy has become the main trigger
The Bank of Japan has, for the first time in a decade, sent a clear signal about a possible rate increase as early as December 19. This is a serious shock for the global market, as Japan's monetary policy has long remained ultra-loose.
Following the regulator's statements, the yen began to strengthen. This led to a massive repatriation of Japanese capital from foreign assets back into national ones. At the same time, investors are closing positions in carry-trade — one of the key mechanisms for supplying liquidity in the U.S. The closure of such positions traditionally pressures risk assets, including stocks and cryptocurrencies.
The yield on Japanese government bonds is rising: two-year JGBs have increased to levels not seen since 2008, making Japan's assets more attractive and stimulating liquidity outflows from global markets. The Nikkei index and other stock indicators are also declining, forming a powerful risk-off signal.
2. Risk avoidance ahead of a block of key U.S. data
This week, the market is anticipating important macro statistics: data on consumer spending, Cyber Monday results, ADP employment figures, and ISM indices. Uncertainty is forcing investors to cut risk and reduce exposure to risky assets.
3. Uncertainty around the Federal Reserve and potential leadership change
The Federal Reserve meeting will take place on December 10. Concurrently, rumors are circulating about a possible replacement for Jerome Powell. This creates an additional level of uncertainty. Even if the market prices in a probability of a rate cut, investors are not ready to increase risk until clear signals emerge.
4. Pressure on the technology sector
After a prolonged rise, the AI sector is showing signs of slowing down. Valuations of tech companies have become excessively high, while R&D expenses continue to rise. The global MSCI index has turned negative for the first time in seven months, creating additional pressure on risk assets.
5. Weak economic data from China
China's manufacturing sector is once again in a contraction phase, marking a record period of decline. Weak indicators are pressuring Asian markets and shaping a decrease in overall global risk appetite.
6. The crypto market mirrors the overall macro dynamics
Bitcoin has fallen below $86,000, Ethereum below $3,000. The reason for the drop is not related to local factors in the crypto market. The current movement is a reaction to the macroeconomic backdrop and a decrease in global liquidity. The market has switched to a risk-off mode, where crypto behaves like a high-risk asset.
Conclusion
The correction is a result of a complex realignment of global financial flows. Increased signals from the Bank of Japan, uncertainty regarding the Federal Reserve, weakness in the Chinese economy, and cooling in the technology sector create synchronized pressure across all risk asset classes. The crypto market is no exception and mirrors the overall macro trend.
