From the Bank of Japan's interest rate hike to mining pool closures—why does Bitcoin continue to decline? An in-depth analysis of the three-layer logical chain

Monday’s market conditions were truly suffocating. Bitcoin dropped to around $85,600, Ethereum fell below the $3,000 mark; publicly traded companies related to crypto also came under collective pressure—one platform’s business unit experienced nearly a 7% decline in a single day, leading trading platforms fell over 5%, and mining companies saw declines exceeding 10%. This drop was not caused by a single factor but rather a three-layered chain reaction triggered simultaneously: macro policy divergence, on-chain capital shifts, and actual pressure on the mining sector.

The Bank of Japan is the “Instigator” of this Wave of Decline

The most overlooked trigger of this downturn actually comes from Japan. The Bank of Japan’s decision to raise interest rates may be the most significant event in the global financial scene this year, yet the crypto market’s reaction has been sluggish.

Historical data makes it clear: every time Japan raises interest rates, Bitcoin struggles. The consequences of Japan’s last three rate hikes are eerily similar—immediately after the March 2024 hike, Bitcoin fell 27%; after the July hike, it dropped 30%; and by January 2025, another 30% decline. This time marks the first rate hike since January, with market expectations of a 97% probability of a 25 basis point increase—virtually a certainty, with the press conference just a formality.

The real issue isn’t the rate hike itself but Japan’s role as the world’s second-largest economy. Japan is the largest foreign holder of U.S. debt, with holdings exceeding $1.1 trillion. When the BOJ shifts direction, it impacts global dollar supply, bond yields, and even liquidity in risk assets like Bitcoin. More critically, a sale of Japanese-held U.S. bonds could trigger a chain reaction.

Another often underestimated dimension: the Japanese Yen is the second most influential currency in the global forex market after the dollar. Over the past 30 years, the bull market in U.S. stocks has been backed by Yen arbitrage trading. For decades, investors borrowed in low-interest Yen and invested in U.S. stocks, bonds, or even Bitcoin—this is the famous Yen carry trade. When Japan raises interest rates, these arbitrage positions are forced to unwind, leading to passive deleveraging across markets.

Currently, the scenario is: global central banks are cutting rates, but Japan is raising them. This policy divergence accelerates the unwinding of arbitrage trades, causing a sharp sell-off in risk assets. Even more concerning, the BOJ has confirmed it will start large-scale ETF sales worth about $55 billion from January 2026. If Japan continues to hike rates or raises them multiple times in 2026, markets could face more intense volatility—accelerated selling, rapid unwinding of arbitrage, and devaluation of risk assets. The combination of these “accelerations” could have unimaginable consequences.

Of course, if luck is on our side, the BOJ might pause after this rate hike, and markets could rebound after an initial plunge. But the probability of that happening seems low at present.

The Fed’s “Uncertainty” Becomes the New Killer

Beyond Japan’s variables, the U.S. side is also amplifying uncertainty. After the Fed’s first rate cut, market focus immediately shifted: “How many more rate cuts can the Fed make in 2026? Will the pace slow down?” This re-pricing of expectations is eroding investor confidence in liquidity.

This week, two key data releases are imminent: Non-Farm Payrolls and CPI. These indicators will directly influence market perceptions of the Fed’s policy path in 2026.

The Non-Farm Payrolls report is expected today, with an estimated 55,000 new jobs—significantly lower than the previous 110,000. At first glance, this seems positive for rate cuts, but the question is: if employment drops too quickly, will the Fed become worried about a recession and become more cautious, possibly even pausing rate hikes? Therefore, the direction of the data is crucial; signals of recession risk may have a greater impact on markets than the mere expectation of rate cuts.

CPI data will be released on December 18. The market’s focus is whether inflation will rebound. If inflation becomes more sticky, the Fed might continue to inject liquidity while simultaneously accelerating balance sheet reduction to achieve a “nominal easing, real tightening” balance. This could mean actual available liquidity in the market decreases.

The next “sure to cut rates” window is January 2026, but that is still far off. According to market forecasts, the probability of maintaining current rates on January 28 is as high as 78%, with only a 22% chance of a rate cut. This uncertainty often hits high-risk assets like Bitcoin harder than clear tightening—because the market doesn’t know how to price it.

Meanwhile, the Bank of England and the European Central Bank will also hold meetings. Central bank policies worldwide are diverging sharply: Japan tightening, the U.S. hesitating, Europe and the UK watching cautiously. This “inconsistent liquidity environment” is the most challenging scenario for Bitcoin to navigate.

On-Chain Capital Shifts: Long-term Holders and Miners Both Slowing Down

Beyond macro shocks, on-chain data reveals more direct selling pressure.

Some exchanges recorded approximately $3.5 million in net outflows (around 4,000 BTC) within a single day, while another major platform saw net outflows of about $650,000 worth of Ethereum products. More notably, Bitcoin’s performance during U.S. trading hours has been persistently weak—data shows that after a well-known fund launched Bitcoin products, the post-market holdings yielded 222%, but during trading hours, the return was a negative 40.5%. This indicates large sums of capital are being sold off during the day.

On-chain transfer data is also a warning sign. On December 15, inflows of Bitcoin to exchanges reached 3,764 BTC (about $340,000), hitting a local high. One large exchange received 2,285 BTC—eight times its usual inflow. Such concentrated large inflows are clearly preparing for significant sell-offs.

Long-term holders are also rapidly changing their behavior. Those who haven’t moved their holdings in over six months have started to accelerate selling recently—this trend began in late November and intensified by mid-December. On-chain analysis confirms this: whether it’s miners’ net positions or the behavior of long-term OGs, all point to the same conclusion—whales are exiting.

Even more concerning is the collapse of hash rate. Data from a major mining pool shows that as of December 15, the total network hash rate dropped to 988.49 EH/s, a 17.25% decline in just one week. The reasons are varied: rumors suggest Bitcoin mining farms in Xinjiang are gradually shutting down; industry insiders estimate that at least 400,000 mining rigs, averaging 250T each, have been taken offline. This large-scale reduction in production will further exacerbate supply-side panic and may even reverse expectations of continued miner selling.

Three Layers of Resonance: The Complete Chain of Market Decline

In summary, the recent decline in Bitcoin and Ethereum is a full “domino effect”:

First layer: The BOJ shifts to tightening, breaking global policy coordination, leading to massive unwinding of Yen arbitrage positions. Second layer: The Fed’s policy outlook becomes uncertain, forcing markets to downwardly revise liquidity expectations for 2026. Third layer: Long-term holders, miners, and large funds simultaneously adjust their positions, with on-chain outflows continuously accumulating.

This is not the result of a single isolated event but a coordinated weakening across macro policy, market expectations, and capital flows. Until at least one of these variables shows a clear turnaround, downward pressure will persist. In the short term, this week’s Non-Farm Payrolls and CPI data are critical—they could determine whether the market continues to disappoint or manages a slight relief.