The Japanese election shock caused a repricing of assets. Sanae Takaichi’s landslide victory signaled aggressive fiscal stimulus and tolerance for yen weakness. The markets reacted quickly. Capital shifted to Japanese government bonds as reflation expectations boosted domestic yields.
This rebalancing has taken the incremental liquidity out of US equity ETFs. At the same time, the depreciation of the yen reinforced the strength of the dollar, worsening global financial conditions.
Source: CryptoQuant
American indices corrected as risk appetite cooled; Nasdaq, S&P 500 and Russell 2000 all posted weekly losses during macro reassessment.
This risk reduction culminated in crypto. Bitcoin [BTC]which often trades as a high-beta liquidity asset during risk phases, suffered a deleveraging rather than a fundamental deterioration. Leverage decreased and short-term flows became defensive.
The implication is liquidity-driven and not structural. In the short term, tighter global capital conditions could limit upside and increase Bitcoin’s volatility.
However, Japan’s supportive Web3 policies and favorable regulations could ultimately revive investor interest. For now, economic pressure is weighing on the market, but future conditions could provide strong support.
From the Japanese liquidity pulse to Bitcoin price cycles
Bitcoin’s price continues to closely monitor global M2 liquidity cycles. As M2 supply grew steadily above $100 trillion over 2020-2021, BTC rose towards previous cycle highs, reflecting abundant macro liquidity.
At the same time M2 on an annual basis grow rose sharply, boosting demand for risky assets. However, in 2022, circumstances changed. M2 growth turned negative, and Bitcoin corrected along with it, highlighting tighter financial conditions.
Source: CoinGlass
The contraction in liquidity suppressed speculative inflows and reduced the debt burden. The momentum then reversed in 2024-2025. M2 delivery rose to $120 trillion as annual growth recovered. Bitcoin followed suit and claimed higher price ranges.
Japan’s continued easing contributed to this liquidity base and supported carry flows. Thus, the expansion of M2 continues to support Bitcoin’s macro-driven growth correlation.
Macroliquidity stress causes cascading debt liquidations
As global M2 conditions tighten and carry trades decline, Bitcoin’s derivatives complex continues to absorb the shock through forced leverage compression.
Futures Open interest had already fallen from cycle concentrations of above $50 billion to the mid-$20 billions, confirming systemic deleveraging rather than passive positioning shifts.
Source: Glassnode
Liquidation heatmaps now refine that story at the execution level. Dense long clusters formed just below the prevailing limits, especially in the $68,000-$70,000 zone, creating reflexive downside trigger zones.
As price tapped into these pockets, it cascaded liquidations followed. Intraday stress events in early February wiped out more than $1 billion in leveraged longs, while BTC-specific wipes exceeded $700 million in single sessions.
Source: CoinGlass
This forced sales cycle accelerated OI contraction: liquidations closed outstanding contracts, compressing the debt burden by 20 to 30% in short periods.
Structurally, this corresponds to liquidity extraction cycles, in which macro tightenings lead to unwinding, triggering liquidation cascades, amplifying Bitcoin’s debt reset before a sustainable reexpansion phase can emerge.
Final thoughts
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Japan-led liquidity reallocation led to a deleveraging across markets, compressing Bitcoin’s leverage as macro capital tightened.
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The M2 contraction and liquidation cascades are amplifying the debt reset phase, delaying the rebound until structural liquidity is restored.