Crypto Carnage - Every Financial Bubble Eventually Comes To An End
By Michael Snyder/Economic Collapse Blog December 02, 2025
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It's a bloodbath out there right now. On Monday alone, crypto investors lost about $200,000,000,000 in just 24 hours. Overall, crypto investors have lost about $800,000,000,000 over the last month. In this article, I want to try to explain why this is happening and what is coming next.
You see, the truth is that the era of easy money is ending. For a long time, investors could borrow yen at ultra-low interest rates and use that money to purchase cryptocurrency and make amazing returns. But now Japanese bond yields are going nuts and all variations of the "yen carry trade" are starting to unwind...
For years, a lucrative trade for global investors has been to borrow yen to buy high-yielding assets like US stocks, or in this case, cryptocurrencies. Interest rates in Japan had been low or at zero, making borrowing yen relatively cheap and creating a sweet opportunity for traders. It's known as the "yen carry trade."
However, the Bank of Japan has signaled it could raise interest rates, in part to address stubborn inflation, continuing a recent shift away from years of ultra-low rates. Yields on benchmark Japanese bonds just hit their highest level since 2008, signaling expectations for higher rates. As rates in Japan rise, it can boost the value of the yen. That makes borrowing yen less affordable, eating into the profitability of the carry trade.
That could pressure traders to sell their bitcoin and stocks now to repay their loans and prevent the risk of further losses. In addition to a sell-off, it could lead to less cash flowing into crypto and stocks.
On Sunday night, Japanese bond yields spiked again, and this caused another round of panic for crypto investors.
And we all saw what happened once the selling started.
For years, crypto investors laughed at the rest of us as they enjoyed the ride up as the bubble inflated.
But now the bubble is bursting, and the ride down is going to be far more messy that the ride up due to the extreme leverage in the cryptocurrency market...
Ben Emons, founder and CIO of Fedwatch Advisors, said that people remain "nervous" following the recent bitcoin sell-off, adding that Monday's reversal has broadly been attributed to a $400 million exchange liquidation.
Speaking with CNBC's "Squawk Box Europe" on Monday, he highlighted the sizable leverage across bitcoin exchanges, which is up to 200x in some instances. With an estimated $787 billion outstanding leverage in perpetual crypto futures, against some $135 billion outstanding in ETFs, "you can do the math," Emons said.
"There is still a lot of leverage in bitcoin out there. We can expect to some more of these liquidations if bitcoin prices don't get off the lows from here," he added.
As long as crypto prices just kept going up, everything was going to be fine.
But now that crypto prices are going down, we are seeing wave after wave of forced liquidations.
Yet another wave of forced liquidations is what pushed crypto prices down so rapidly on Monday.
At this point, things are so bad that even the largest corporate holder of Bitcoin may soon be forced to start selling...
The biggest corporate holder of bitcoin has announced a U.S. dollar dividend reserve of more than $1 billion, days after its top executive laid out what might force the company to sell some of its $56 billion in bitcoin holdings.
Strategy, formerly known as MicroStrategy, announced Monday that it will establish a $1.44 billion reserve "to support the payment of dividends on its preferred stock and interest on its outstanding indebtedness." The reserve was funded by sales of its Class A common stock, and Strategy plans to keep sufficient reserves to fund its dividends for at least 12 months.
What we are witnessing is not just a temporary correction.
As Shanaka Anslem Perera laid out very clearly in an excellent social media post, the entire system is being forced to reset because Japanese bond yields are soaring. I have reproduced his entire social media post below...
JAPAN JUST KILLED THE GLOBAL MONEY PRINTER AND NOBODY NOTICED
The most dangerous number in finance right now is 1.71%.
That's Japan's 10-year bond yield. Highest since 2008. Here's why your retirement just got obliterated:
For 30 years, Japan printed infinity money at 0% rates and exported it worldwide. $3.4 trillion flowed into US Treasuries, European debt, emerging markets. This invisible bid kept YOUR mortgage cheap, YOUR stocks inflated, YOUR government solvent.
November 10th, 2025: The bid disappeared.
Japan's yield hit 1.71%. They're pumping $110 billion stimulus into their economy while debt sits at 263% of GDP. The math just became impossible. At 1.7% rates, Japan pays $27 billion MORE in interest. Every. Single. Year.
Here's the extinction event nobody sees coming:
Japanese pension funds are pulling $1.1 trillion OUT of US Treasuries right now because keeping money in America LOSES them money after hedging costs. The largest foreign buyer of American debt is becoming a seller.
When Japan stops buying, interest rates don't stay flat. They explode. US 10-year yields will jump 40 basis points minimum from flow dynamics alone. Your 7% mortgage becomes 8%. Corporate debt refinancing costs spike 60%. Zombie companies holding $3 trillion in junk bonds start defaulting in waves.
The yen carry trade just reversed. $1.2 trillion in borrowed yen funding crypto, stocks, emerging markets must unwind. Every hedge fund, every momentum trade, every leveraged bet built on free Japanese money is getting margin called simultaneously.
This breaks in three places:
Stock valuations were built for 2% bond yields forever. At 3.5% yields, the S&P 500 fair value drops 35%. Emerging market currencies collapse without Japanese capital inflows. Europe's debt crisis returns because Italy and Spain lose their silent buyer.
December 18th the Bank of Japan meets. 50% chance they hike again. If they do, sell everything not nailed down.
Your 401k doesn't price this in yet. The Fed can't stop this. No central bank can.
The world's biggest piggy bank just cracked open and the money is flowing backwards.
Position accordingly or get destroyed.
When he originally posted that, the yield on 10 year Japanese bonds was 1.71 percent.
Now it has risen to 1.85 percent, which is the highest level since 2008...
Japan just sent a shock through global markets.
The country's 10-year government bond yield jumped to 1.85%, its highest level since 2008, marking a major break from the ultra-low rate environment Japan has lived in for decades. The move is already being called one of the most important signals for global liquidity heading into 2026.
To say that we are potentially facing a major liquidity crisis would be a massive understatement.
For the moment, it is crypto prices that are plunging, but lots of yen was borrowed to buy stocks too.
So let's keep a very close eye on U.S. stock prices in the days ahead.
History has shown us that every irrational financial bubble eventually comes to an end.
Originally published at The Economic Collapse Blog
