The crypto market stumbled badly in November, and the rough ride has continued into December — a shift that some analysts believe could spill over into the broader stock market.
Bitcoin, the world’s largest cryptocurrency, dropped sharply at the start of the month. Within 24 hours, it slid about 7%, falling from just under $92,000 to around $85,000 by midday Monday. The steepest part of the decline came late Sunday, when Bitcoin shed more than $4,000 in only a few hours as trading opened in Asia.
This sudden downswing follows weeks of volatile price movements, as investors become increasingly cautious. The latest wave of concern is tied not only to general risk-off sentiment but also to fears that a widely used global trading strategy could be unraveling.
THE PRESSURE ON THE YEN CARRY TRADE
At the center of the issue is the Bank of Japan. The central bank has hinted that it may raise interest rates at its upcoming meeting — a significant shift after years of ultra-low rates and loose monetary policy.
For a long time, investors have embraced what’s known as the yen carry trade: borrowing Japan’s low-yield currency and using it to buy higher-return assets such as US stocks, bonds, or cryptocurrencies. Because borrowing yen has been cheap for years, this strategy became extremely popular.
But higher interest rates in Japan would push up bond yields and strengthen the yen. As the yen rises, borrowing it becomes more expensive, and the carry trade becomes far less profitable. If that happens, traders who used borrowed yen to buy Bitcoin or stocks could be forced to unwind their positions quickly to avoid losses.
This possibility has raised alarms. A rapid unwind would not only trigger selling but also dry up liquidity in both crypto and equity markets.
As one strategist warned, an unwinding of the carry trade could “pull cash out of the system,” which may create a challenging environment for stocks going into year-end.
STOCKS AND CRYPTO BOTH FEEL THE STRAIN
US markets reflected this anxiety on Monday. The Dow slipped about 200 points, while the S&P 500 and Nasdaq also saw slight declines. Although the losses were modest, they aligned closely with Bitcoin’s plunge — a pattern investors have seen multiple times this year.
Crypto losses weren’t limited to Bitcoin. Ether, the second-largest cryptocurrency, fell nearly 10% within the same 24-hour period. The broader crypto market has been shaky for weeks: Bitcoin’s late-November drop pushed its price just above $80,000, down nearly 35% from its October peak above $126,000.
These declines played a role in dragging down tech stocks in November. The Nasdaq ended the month in the red, breaking a streak of gains, while the S&P 500 briefly dipped around 5% before recovering.
A MARKET AT A CROSSROADS
Despite the turbulence, some investors still expect a strong finish to the year. December has historically been a positive month for stocks, and many on Wall Street are hopeful the Federal Reserve will soon cut interest rates — a move that could support market momentum.
Still, uncertainty remains high. Safe-haven assets like gold and silver have surged as investors look for protection. Silver, boosted by both investor demand and industrial use, reached an all-time high on Monday.
Bitcoin supporters argue that extreme swings are part of its long-term trajectory. Critics counter that such volatility undermines its claim as a reliable store of value. Currently, Bitcoin has fallen nearly 9% this year, while the S&P 500 is up around 16%, and gold has soared more than 60%.
As the year winds down, the market sits at a pivotal moment. If concerns around Japan’s policy shift persist and crypto weakness continues, hopes for a smooth year-end rally may face serious resistance.
