What To Know:
- Panelists at a crypto event said the recent crypto selloff was triggered by macro pressures in traditional finance, particularly the unwinding of yen carry trades.
- Rising Japanese rates and higher margin requirements forced investors to close leveraged positions, leading to broad selling across crypto, metals, and equities.
- Despite ETF outflows and short-term volatility, market participants described the move as capital rotation driven by liquidity conditions, not a structural crypto crisis.
The latest crypto selloff has drawn comparisons to past market shocks, but several industry participants say the cause is the spillover from traditional finance.
At Consensus Hong Kong 2026, market executives described the selloff as a macro-driven unwind that began in traditional finance and spilled into crypto. The selling, they argued, reflected global liquidity pressures rather than internal failures or structural weaknesses within the crypto market.
“After Oct. 10th, a lot of people had already reduced risk,” said Fabio Frontini, founder of Abraxas Capital Management. He added that the move was “a spillover from TradFi entirely,” underscoring how closely digital assets now track broader financial conditions.
Crypto Selloff Due to TradFi Spillover
At the center of the turbulence was the yen carry trade. Thomas Restout, group CEO of B2C2, outlined the mechanics during a panel discussion. Investors borrow in low-interest-rate currencies such as the Japanese yen. They then convert those funds into other currencies and deploy them into higher-yielding or risk-sensitive assets. Bitcoin, ether, gold and silver have all been popular destinations for such capital.
The strategy works as long as borrowing costs remain low and exchange rates stable. However, when the yen strengthens or rates rise, the economics shift quickly. Investors must buy back yen to repay loans. That process forces positions to close. Volatility increases across markets.
As Japanese rates moved higher, borrowing costs climbed. Simultaneously, margin requirements rose sharply. In metals markets, Restout noted, margin requirements jumped from 11% to 16%. Similar pressures were felt across asset classes. Traders facing higher collateral demands unwound positions to meet those calls.
The result was broad-based selling. Crypto fell alongside commodities and equities.
Exchange-traded funds tracking bitcoin recorded heavy trading volumes during the downturn. Some observers interpreted the flows as institutional capitulation. Panelists rejected that view.
At their peak, bitcoin ETFs held roughly $150 billion in assets, according to Restout. They now hold about $100 billion. Net outflows since October total around $12 billion. The figure is meaningful but limited relative to overall assets. Restout described the activity as a rotation of capital rather than an exodus.
The episode highlighted how deeply crypto is now embedded in global financial plumbing. Liquidity events in foreign exchange and bond markets transmit rapidly into digital assets. Correlations rise during stress periods. Risk is repriced across the board.
Meanwhile, regulatory and infrastructure developments continue to bind traditional finance and crypto more closely. Emma Lovett, credit lead for Market DLT at J.P. Morgan, said 2025 marked a turning point in the United States. A more permissive regulatory environment has encouraged experimentation beyond private blockchains. Institutions have begun testing public chains and stablecoins for settling traditional securities.
That convergence is expected to accelerate in 2026. As banks and asset managers integrate blockchain-based settlement rails, crypto markets may become even more sensitive to macro liquidity cycles.
Market pricing reflects the recent volatility. Bitcoin briefly broke local highs before reversing. It is currently trading at $67,624.40 after a 0.6 percent hourly gain. Ethereum stands at $1,984.87, up 1 percent over the past 24 hours. However, Ethereum’s monthly RSI has dropped near historic lows and has not reached overbought territory since 2021.
Trader Michael van de Poppe pointed to U.S. unemployment data as a key variable. If unemployment rises, bond yields could decline, this could increase pressure on the Federal Reserve to cut rates. In that situation, gold and silver may dip in the short term before recovering. Bitcoin could follow a similar pattern, with a brief pullback preceding renewed strength later this month. Liquidity conditions, he said, remain central.
The global crypto market capitalization stands at $2.39 trillion, up 0.7 percent over the past 24 hours. Total daily trading volume is approximately $113 billion.
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