Navigating the December Storm: Yen Unwind, Tax Selling, and Hope for a Crypto Bull Run in 2026
As 2025 draws to a close, the crypto market is enduring a brutal correction. Bitcoin has plunged nearly 30% from its October all-time high of around $126,000, currently trading in the $87,000–$90,000 range amid heavy selling pressure. Altcoins and the broader market have suffered even more. Many are pointing to two primary culprits behind this late-year "mess": the ongoing unwind of the yen carry trade and classic year-end tax loss harvesting.
But could this be the final capitulation before a strong reversal? Let's break down the dynamics and explore why January 2026 might mark the beginning of a robust recovery phase that could last into mid-year.
The Yen Carry Trade Unwind: A Persistent Liquidity Squeeze
For years, investors borrowed yen at near-zero interest rates in Japan to fund investments in higher-yielding assets — including U.S. stocks, bonds, and cryptocurrencies. This "carry trade" provided a massive tailwind for global risk assets and helped fuel Bitcoin's explosive rally.
Throughout 2025, the Bank of Japan gradually abandoned its ultra-loose monetary policy, raising rates and allowing the yen to strengthen. Higher borrowing costs forced many participants to unwind positions: selling assets to repay yen-denominated loans. The ripple effects hammered crypto markets, triggering leveraged liquidations and billions in losses, especially during sharp sell-offs in November and December.
While much of the BOJ's tightening path was well-telegraphed earlier in the year, renewed yen strength (USD/JPY dipping toward 140–150) reignited fears in Q4. However, speculative yen positioning is already quite extended, limiting the potential for explosive further surges. The acute phase of the unwind appears to be peaking, and we may largely be through the worst of it by year-end.
Tax Loss Harvesting: Pouring Fuel on the Year-End Fire
Compounding the pressure is widespread tax loss selling. With significant drawdowns from 2025 highs, U.S. investors are scrambling to realize losses before December 31. These losses can offset capital gains taxes (from earlier profits in crypto or stocks) and up to $3,000 of ordinary income, with any excess carried forward.
A key advantage in crypto: there is no wash-sale rule. Investors can sell at a loss, claim the deduction, and immediately repurchase the same asset. This mechanic encourages aggressive harvesting and floods the market with supply in December. Historical patterns show this selling pressure typically exhausts itself by year-end, setting the stage for a rebound as buyers step back in.
Why January 2026 Could Mark the Turning Point
Once the calendar flips to 2026, several catalysts could reverse the flows:
Reversal of tax-related selling — Many harvesters repurchase in January, creating fresh buying pressure. Crypto has often exhibited a strong "January effect," especially following tough Decembers.
Easing yen unwind pressure — With most anticipated BOJ moves now priced in, global liquidity conditions could stabilize, reducing sudden deleveraging shocks.
Potential U.S. policy tailwinds — The pro-crypto stance of the current administration, combined with talks of fiscal measures (such as tariff-funded dividends or broader stimulus), could lift risk sentiment. Even without massive immediate checks, expected Fed rate cuts and regulatory clarity would support risk assets.
We saw a similar post-inauguration surge early in 2025. A repeat scenario — bolstered by resuming ETF inflows and continued institutional accumulation — could propel Bitcoin back toward $100,000+ and drive a broad rally through May 2026.
Risks to the Bullish Scenario
This outlook is far from guaranteed. Persistent deleveraging could push Bitcoin below $80,000 in the short term. Geopolitical tensions, unexpected Fed hawkishness, or delays in U.S. policy execution could extend the weakness.
That said, underlying fundamentals remain constructive: spot Bitcoin ETFs recorded massive inflows earlier in 2025, corporate balance sheets hold record BTC, and post-halving supply dynamics continue to tighten.
Conclusion
December 2025 feels chaotic, but it may represent the final washout of temporary headwinds. The yen carry trade unwind and tax loss harvesting are well-known, largely anticipated pressures that historically reverse in the new year. If the pattern holds, 2026 could kick off with relief rallies and deliver strong gains into the spring.
Stay disciplined, consider harvesting losses strategically if it fits your situation, and prepare for the potential flip. Crypto winters always end — and bull markets often follow.
Disclaimer: This is not financial advice. Cryptocurrency markets are highly volatile. Always conduct your own research and consult professionals before making investment decisions.
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