The recent plunge in Bitcoin has triggered turbulence in financial markets, with concerns rising over a potential “contagion effect.” Reports indicate that Bitcoin entered a bear market in November, and investors—especially those using borrowed funds—engaged in massive sell-offs to meet margin calls, causing hundreds of billions of dollars in market value to evaporate within just a few weeks. Independent economist Saul Eslake noted that many investors were overly optimistic about Bitcoin’s potential value and relied on leveraged trading, which amplified market volatility.
In recent months, the Bitcoin market has experienced extreme fluctuations. In early October, Bitcoin reached a historic high of $125,135, but market sentiment was severely hit after U.S. President Trump threatened to impose a 100% tariff on Chinese goods, triggering the largest liquidation wave in history. Deutsche Bank pointed out that this wave of selling could have a chain reaction, forcing retail investors to sell other assets to meet margin requirements. Eslake added that frequent capital flows into Bitcoin-related ETFs this year, coupled with recent large outflows, were major factors behind the sharp price decline.
Experts warn that Bitcoin lacks intrinsic yield, and if a prolonged bear market continues, leverage could transmit effects to other financial markets and even the real economy, reminiscent of the contagion effect seen in the subprime market during the 2008 global financial crisis.