Bitcoin extended its sell-off on Tuesday, erasing all of its gains for 2026 and triggering more than $1.8 billion in liquidations across crypto derivatives markets in just two days. The move comes as investors react to renewed trade tensions from the White House and sharp dislocations in Japan’s government bond market.
The world’s largest cryptocurrency fell roughly 4% in late trading, underscoring how macroeconomic stress, rather than crypto-specific news, is now driving price action across digital assets.
What happened in crypto markets
Bitcoin dropped to around $87,790 on Coinbase, its lowest level since December 31. According to data from Coinglass, liquidations over the past 48 hours exceeded $1.8 billion, with long positions accounting for roughly 93% of the total.
The decline has pushed Bitcoin down about 10% from its year-to-date high near $98,000 and below its 50-day exponential moving average, a technical level that had supported prices during the recent rally.
The broader crypto market followed suit. Total digital asset market capitalization fell by an estimated $225 billion, the steepest contraction since mid-November, bringing the sector’s value to roughly $3.08 trillion.
Why this sell-off looks different
While traders initially pointed to renewed tariff threats from Donald Trump as a catalyst, several market participants argue that the real pressure is coming from outside the crypto ecosystem.
According to reporting by Reuters, fears of a revived “sell America” trade resurfaced after Trump signaled a tougher stance on tariffs, echoing market reactions seen after similar announcements last April. But the timing of the crypto slump has closely tracked turmoil in Japan’s bond market.
Dan Tapiero, founder and CEO of 50T Funds, described the move as a broader risk-off event driven by what he called “complete annihilation” in Japanese government bonds, with knock-on effects across global markets.
Japan’s bond shock and global liquidity concerns
Japan’s 10-year government bond yield jumped nearly 19 basis points over two trading sessions, while 30-year yields recorded their largest single-day rise since 2003. Investors are increasingly worried about higher government spending, reduced liquidity, and fiscal uncertainty ahead of a snap election, Reuters reported.
US Treasury Secretary Scott Bessent said markets were reacting primarily to the bond shock, noting that Japan’s 10-year yield experienced what he described as a “six-standard-deviation move” over two days. He downplayed the role of trade headlines, saying the sell-off had little to do with geopolitics.
The surge in yields raises the risk of an unwind in the yen-funded carry trade, a key source of global liquidity that has supported risk assets, including cryptocurrencies, over the past year.
Why Bitcoin is under pressure despite the “digital gold” narrative
Jeff Ko, chief analyst at CoinEx Research, said the bond market volatility threatens to accelerate capital flight and tighten liquidity conditions worldwide.
“This threatens to accelerate the carry trade unwind, further tightening a critical source of global liquidity,” Ko said, adding that capital flows are increasingly shifting away from US assets as geopolitical and fiscal risks grow.
Bitcoin, he noted, is being pulled in two directions. While it is often compared to hard assets such as gold, which hit fresh record highs this week, Bitcoin remains highly sensitive to liquidity conditions. In periods of forced deleveraging, it is often sold alongside other risk assets.
What investors are watching next
The next phase for crypto markets will likely hinge on whether bond volatility stabilizes and whether policymakers signal measures to restore liquidity. Continued stress in Japanese debt markets could amplify deleveraging across global portfolios, keeping pressure on Bitcoin and other digital assets.
At the same time, traders are watching US trade policy signals and upcoming macro data for clues on whether the recent sell-off marks a temporary reset or the start of a deeper risk-off cycle.
For now, Bitcoin’s sharp drawdown highlights how tightly crypto markets are intertwined with global financial plumbing, especially during periods of sudden liquidity shock.
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