Bitcoin & Ethereum Plummet as Crypto Sell-off Resumes Amid China Warning, High Leverage, & Macro Concerns

Crypto Market Plunges: Bitcoin & Ethereum Lead Sharp Decline Amid Global Concerns

The cryptocurrency market experienced a significant downturn on Monday, with major digital assets like Bitcoin and Ethereum seeing sharp declines. This latest dip signals a renewed sell-off in December, influenced by a broader risk-off sentiment pervasive across global financial markets.

Major Cryptocurrencies See Steep Falls

Bitcoin, the leading cryptocurrency, was last observed trading around $85,959 at 8:11 a.m. ET, reflecting a nearly 6% drop. Ethereum, the second-largest digital asset, also suffered, falling approximately 6.6% in early trading to reach about $2,827. The downturn wasn't limited to these giants; Solana plunged over 7% to approximately $127, and other widely tracked tokens, including Dogecoin, saw declines of around 9%.

China's Warning and Broader Market Pressures

A key factor contributing to the market pressure in Asia was a statement released by the People's Bank of China on Saturday. The central bank issued a warning regarding illegal activities associated with digital currencies, which subsequently impacted Hong Kong-listed shares of companies linked to digital assets, causing them to retreat during Monday's trading session.

This fresh wave of selling in digital assets aligns with a more widespread cautious investor mood as the new month begins. Ben Emons, founder and CIO of Fedwatch Advisors, commented on the prevailing "nervousness" among investors following previous Bitcoin sell-offs. He largely attributed Monday's market reversal to a substantial $400 million exchange liquidation.

Excessive Leverage and Retail Dominance Raise Concerns

Speaking on CNBC's "Squawk Box Europe," Emons highlighted the alarming level of leverage present within Bitcoin exchanges, which can reach up to 200x in some instances. He pointed out the significant disparity between an estimated $787 billion in outstanding leverage in perpetual crypto futures and only about $135 billion outstanding in ETFs, stating, "you can do the math." Emons warned that further liquidations could occur if Bitcoin prices do not recover from their current lows, underscoring the excessive leverage still in the market.

Monday's decline followed a sharp sell-off in October, which also affected the stock market. Emons noted Bitcoin's increasing correlation with certain equity indexes, particularly the Nasdaq. He expressed concern that the crypto market is "predominantly retail driven," which he finds worrying because retail investors often react differently from institutional ones. This, coupled with the decentralized and often opaque nature of crypto exchanges and the asset class itself, presents a challenge for the future as leverage continues to grow in the space.

Macroeconomic Headwinds

Beyond immediate market dynamics, overarching macroeconomic concerns continue to weigh on investor sentiment. Uncertainty surrounding a potential U.S. interest rate cut, alongside lingering doubts about overvalued artificial intelligence-related stocks, contributed to November's volatile markets and heightened crypto instability.