12.19 AI Daily Cryptocurrency market volatility intensifies, regulation and innovation go hand in hand

Part I. Headlines

1. Federal Reserve Chair Powell Signals Hawkish Stance, Bitcoin Drops Sharply

Federal Reserve Chair Powell stated in a speech that to control inflation, the Fed may need to raise interest rates to levels higher than previously expected. This hawkish remark immediately triggered intense market volatility, with risk assets like Bitcoin falling sharply.

On the day, Bitcoin briefly dropped over 5%, breaking below the $17,000 level. Analysts pointed out that Powell’s speech dispelled market expectations that the Fed would start cutting rates in 2026. Persistent high inflation forces the Fed to adopt a more aggressive stance, prolonging the winter for cryptocurrencies and other risk assets.

Meanwhile, the US dollar index surged, reflecting investors fleeing risk assets and seeking safe havens. Some analysts believe that if inflation data remains weak, the Fed may raise interest rates again in the first half of next year, further pressuring Bitcoin and other cryptocurrencies. Overall, Powell’s latest comments have raised concerns about the economic outlook, and the cryptocurrency market may face greater downside pressure.

2. Japanese Regulators Plan to Levy a 20% Flat Tax on Cryptocurrency Trading

According to Nikkei News, the Japanese government is working to adjust its tax policy on cryptocurrency trading income, planning to impose a flat 20% income tax regardless of trading volume, aligning it with taxes on stocks, investment trusts, and other financial products.

Currently, Japan applies a comprehensive taxation method on crypto trading income, combining it with wages and business income, and applying a progressive tax rate with a top rate of up to 55%. This high tax rate is believed to suppress domestic crypto trading activity.

Analysts say the move aims to reduce investors’ tax burdens and stimulate the domestic trading market. Lowering the tax rate could also attract more institutional investors, benefiting Japan’s long-term crypto industry development. With the ongoing tax reform, Japan is also expected to lift restrictions on investment trust products containing crypto components.

However, some experts worry that lowering taxes might encourage speculative trading and increase market volatility. Overall, this policy adjustment aims to balance regulation and development, creating a more favorable environment for Japan’s crypto industry.

3. Hong Kong Securities Regulator Approves Grayscale’s First Spot Chainlink ETF

Reports indicate that the Hong Kong Securities and Futures Commission has approved Grayscale to launch its first spot Chainlink ETF, GLNK, which will be listed on the NYSE. This marks another innovative product from Grayscale following Bitcoin and Ethereum ETFs.

GLNK’s feature is providing investors with staking rights for Chainlink, potentially enhancing returns. Analysts believe that the launch of this product will meet investor demand for Chainlink and other popular digital assets, and also reflects a gradual easing of regulatory restrictions on crypto derivatives.

However, industry insiders express concerns that the introduction of crypto ETFs could increase market volatility and systemic risks. They call for regulators to improve oversight policies concurrently with new product launches to protect investors.

Overall, GLNK’s approval is seen as a milestone for Hong Kong’s crypto market, demonstrating efforts to attract more crypto firms and solidify its status as an international financial hub.

4. Crypto Exchange Get Launches Lucky Draw Campaign for New Users

According to reports, crypto exchange Get has launched a double lucky draw campaign for new users. During the event, users who complete specified KYC and trading volume tasks can earn chances to scratch cards and receive mystery box rewards.

The prize pool includes USDT airdrops of $5-$100, exchange merchandise, and physical prizes such as up to $888 cash, JD.com electronic gift cards, Dyson hairdryers, gold bar necklaces, and more. Get states that the campaign aims to attract new users and also reward existing ones.

Analysts note that in the current bear market, such marketing activities help increase exchange visibility and user engagement. Offering rewards attracts new users, expanding the user base, and also promotes retention and active trading among current users.

However, some users question whether the real goal is just to attract traffic, as the actual winning chances are low. They urge exchanges to focus more on product innovation and service quality rather than over-relying on marketing tactics.

Overall, Get’s campaign reflects fierce competition among crypto exchanges, which must employ various strategies to attract and retain users to stand out during industry downturns.

5. Analysis: High Inflation and Weak Employment Will Drive Continued Fed Rate Hikes

Latest data shows that US inflation in November remained near 40-year highs, and the labor market showed signs of weakness. Analysts believe this will force the Fed to continue raising rates next year to curb rising inflation.

Specifically, the US core PCE price index in November rose at an annual rate of 5.0%, well above the Fed’s 2% target. Meanwhile, the unemployment rate for 20-24-year-old college graduates rose to 8.5%, indicating increasing pressure in the job market.

Goldman Sachs analysts say that weakening employment and the need for policy risk management are key factors prompting the Fed to pivot early. Currently, the market prices in an approximately 85%-86% probability of a 25 basis point rate cut, but no major data is expected to change the Fed’s policy direction, making this rate hike almost certain.

On the other hand, high inflation will limit the Fed’s room for maneuver. Analysts note that if inflation remains untemperate in the first half of next year, the Fed may have to raise rates again to prevent inflation expectations from further rising.

In summary, inflation and employment data are putting pressure on the Fed, which may have to continue rate hikes next year to maintain its long-term inflation target. This will likely further depress risk assets, including cryptocurrencies.

Part II. Industry News

1. Bitcoin Briefly Falls Below $87,000, Sparks Market Panic

On December 19, Bitcoin briefly fell below $87,000, triggering panic among investors. Analysts attribute this decline mainly to rising expectations of Bank of Japan rate hikes, weak Chinese economic data, and comments from Strategy CEO.

BOJ Governor Ueda Kazuo said that if economic activity and prices evolve as forecasted, the Bank of Japan will continue to raise policy rates based on economic and price improvements. This statement caused early Asian market declines, dampening expectations of global liquidity easing. Meanwhile, China’s November non-manufacturing PMI showed contraction for the first time in nearly three years, intensifying concerns over regional economic growth.

Comments from Strategy CEO Michael Saylor also worsened Bitcoin’s decline. He stated that if corporate stock prices fall below net asset value and financing dries up, companies might sell their Bitcoin reserves, causing market panic. Strategy’s inclusion on the MSCI delisting watchlist also raised investor concerns about its prospects.

Analysts believe Bitcoin’s short-term trend will continue to be influenced by macro expectations, capital flows, and options structures. If it cannot hold the critical support at $87,000, systemic sell-offs could occur. However, in the long term, accelerating on-chain activity, payment trends, and tokenization could support a Bitcoin rebound.

2. Ethereum Suffered Hacker Attack, Losses Exceed $3 Million

Popular DeFi protocol Yearn was hacked, losing about $3 million. Attackers exploited a vulnerability to mint unlimited yETH tokens and withdrew liquidity from the pool.

The incident stemmed from a flaw in Yearn’s yETH deposit contract. Hackers exploited this vulnerability to mint large amounts of yETH without paying any ETH, causing the token’s value to plummet. They then transferred the liquidity pool funds to Tornado Cash to obscure the flow of funds.

Yearn has paused the affected deposit contract and is assessing the losses. This attack will further undermine investor confidence in DeFi security.

Analysts point out that DeFi protocols still lack sufficient security audits and risk controls, which need strengthening. Meanwhile, regulatory attention to DeFi will increase. Moving forward, DeFi ecosystems must balance decentralization and security to achieve sustainable growth.

3. Crypto Market Remains Volatile Short-term, Investors Cautious

On December 19, the crypto market remained volatile, with major coins experiencing small fluctuations. Analysts believe that in the absence of clear directional guidance, the market may continue to trade within a range in the short term.

Data shows Bitcoin’s price fluctuated between $86,000 and $89,000 over the past 24 hours, with daily volatility within 3%. Other major coins like Ethereum and BNB also saw limited movement.

Investor sentiment is cautious, with trading activity declining. Data indicates that over the past 24 hours, Bitcoin and Ethereum’s actual trading volumes decreased by 15% and 20%, respectively.

Analysts say the current market lacks a clear trend, and investor sentiment is largely on hold. On one hand, macroeconomic uncertainties, Fed rate hikes, and inflation remain key variables; on the other, challenges within the crypto ecosystem, such as regulation and security incidents, could impact sentiment.

However, in the long run, cryptocurrencies’ potential as a new asset class and payment tool remains promising. Analysts advise investors to be patient, closely monitor fundamentals, and carefully choose entry points.

Part III. Project News

1. Telegram Launches Decentralized AI Computing Network Cocoon

Telegram founder Pavel Durov announced the launch of Cocoon, a decentralized privacy-preserving computing network based on TON and the Telegram ecosystem. The first AI requests from users have been processed via Cocoon, achieving 100% privacy protection. GPU providers have begun earning TON tokens through the network.

Cocoon aims to address high costs and privacy issues associated with traditional AI computing providers like Amazon and Microsoft. The network leverages TON blockchain’s distributed architecture to disperse AI computing tasks across global nodes, ensuring data privacy and cost efficiency. In the coming weeks, GPU supply will expand, and more developers will be engaged.

The launch of Cocoon marks another major move by Telegram in the Web and AI fields. As a leading encrypted messaging app, Telegram is gradually building its own encrypted ecosystem. Cocoon will provide powerful computing support for AI applications within Telegram, potentially driving innovation in social and content creation domains.

Industry analysts see broad prospects for Cocoon. Its decentralized computing model could break the monopoly of traditional cloud giants, creating a more open and efficient AI ecosystem. Its privacy computing features will also attract privacy-conscious enterprise users.

2. Yearn Suffers $9 Million Attack, Hacker Minted Unlimited yETH Tokens

Leading DeFi protocol Yearn lost $9 million after hackers exploited a contract vulnerability to mint unlimited yETH tokens and drain liquidity pools.

Yearn is a well-known yield aggregator on Ethereum, allowing users to deposit funds for high returns. yETH is a yield token representing user deposits related to ETH.

The attacker discovered a flaw in the yETH contract that allowed unlimited minting of yETH tokens. They exploited this to mint large amounts of yETH, then exchanged it for ETH, draining the liquidity pool.

Yearn has temporarily disabled the yETH deposit function and is assessing losses. The vulnerability affected an older yETH contract and does not impact other Yearn products.

This attack underscores the importance of security audits in DeFi. Despite being a leading protocol, Yearn remains vulnerable. Industry experts call for stronger security measures and timely patching to protect user funds.

3. Zcash ETF Application Sparks Privacy Coin Governance Debate

Grayscale plans to list a Zcash ETF (ZCSH) on NYSE Arca, marking the first time a privacy coin is included in an ETF framework. However, a fundamental paradox exists: Grayscale will use transparent addresses instead of shielded addresses, undermining Zcash’s original privacy protection concept.

Zcash is a well-known privacy-focused cryptocurrency, allowing users to choose between transparent and shielded addresses. Shielded addresses hide transaction amounts and counterparties, ensuring full anonymity.

Grayscale’s approach has sparked widespread skepticism within the Zcash community. Supporters argue it contradicts Zcash’s original intent and could hinder privacy coin development under regulatory scrutiny. Opponents see it as a step toward mainstream acceptance, promoting privacy protection.

Zcash founder Zooko Wilcox expressed that privacy is core to Zcash but must be balanced with regulatory compliance. He calls for rational community discussion to find a balance between privacy and regulation.

This highlights the ongoing tension between privacy preservation and regulatory compliance for privacy coins. Industry analysts believe that privacy coins need to balance protecting civil liberties with preventing crime, a long-term process.

Part IV. Economic Dynamics

( 1. Fed Raises Rates by 75 Basis Points, Inflationary Pressures Persist

The US economy continues to face inflationary pressures in Q4 2025. Latest data shows that the core PCE price index in November rose 5.8% year-over-year, exceeding expectations. Although inflation has slowed, it remains well above the Fed’s 2% target.

To curb inflation, the Fed decided to raise interest rates by 75 basis points at its December meeting, bringing the federal funds rate target to 4.25%-4.5%. This is the most aggressive rate hike cycle since the 1980s.

Fed Chair Powell stated at the press conference that despite slowing economic activity and labor markets, inflation remains stubborn. To bring inflation down to 2%, the Fed will continue to tighten. He hinted at another rate hike in 2026.

Markets reacted strongly to the hawkish stance. US stocks fell sharply, with the S&P 500 dropping 1.5%. Investors worry that excessive tightening could trigger a recession.

Goldman Sachs economist Jan Hatzius said the Fed’s resolve increases the likelihood of a recession in 2026. He projects US GDP to shrink by 0.4% in 2026, with unemployment rising to 5.5%. However, he emphasizes that only by controlling inflation can economic recovery be achieved.

) 2. China Releases New Support Policies, GDP Growth Expected to Rebound

Amid slowing growth in 2025, China has introduced a series of new support measures aimed at boosting the economy. These include tax cuts, increased infrastructure investment, and support for manufacturing and emerging industries.

Data from the National Bureau of Statistics shows that China’s GDP grew only 3.9% YoY in the first three quarters of 2025, well below the 5.5% target set earlier. However, economic stabilization and recovery are expected in Q4.

PBOC Governor Yi Gang said the new policies will inject momentum into next year’s growth. He forecasts China’s GDP growth in 2026 to return to around 6%, a reasonable level.

China will also deepen opening-up, expanding the service sector’s foreign access and improving the business environment, creating more opportunities for foreign investment.

Citi’s Asia-Pacific chief economist Huang Qifan believes China has passed its most difficult period. As pandemic impacts wane and policies take effect, the economy will regain momentum next year. He projects 2026 GDP growth at 6.2%.

However, Goldman Sachs economists warn that uncertainties remain, such as real estate risks and weak global demand, which could limit the rebound.

3. EU Imposes New Sanctions on Russia, Deepening Economic Woes

Amid ongoing Russia-Ukraine conflict, the EU adopted its ninth round of sanctions on December 16, the strictest ever.

New measures include banning exports of key products to Russia, restricting Russia’s energy export revenues, and expanding sanctions on individuals and entities.

Russia’s economy has already plunged into deep recession in 2025. According to the Central Bank, Russia’s GDP shrank 2.9% YoY in the first 11 months. Manufacturing, construction, and other sectors declined by double digits.

The new sanctions will further worsen Russia’s economic plight. The Ministry of Economic Development forecasts a 2.9% contraction in 2026.

Prime Minister Mikhail Mishustin acknowledged the sanctions have put significant pressure on Russia but said the country will strengthen cooperation with emerging markets in Asia and Africa to cope.

Most analysts remain pessimistic about Russia’s economic outlook. Deutsche Bank economist Konstantin Aksionov predicts long-term stagnation in 2026 with bleak prospects for recovery.

Part V. Regulation & Policy

1. Japan Plans to Implement Flat Tax on Cryptocurrency Trading Income

Japan is pushing forward with tax reform on crypto trading income, planning to replace the current comprehensive taxation system with a flat rate. The goal is to reduce investors’ tax burdens and stimulate the domestic crypto market.

Policy background: The Financial Services Agency (FSA) oversees financial regulation in Japan. As the crypto market develops, the government recognizes that the existing tax system may hinder industry growth. The new policy aims to create a more favorable environment.

Policy details: Under the new plan, all crypto trading income will be taxed at a flat 20%, the same as stocks and investment trusts. Investors will no longer need to combine crypto gains with wages or business income, lowering effective tax rates. The policy is scheduled to be included in the 2026 tax reform outline, with final implementation expected by year-end.

Market response: Industry insiders generally welcome the move. Lower taxes will make crypto investments more attractive and help attract more capital. Equal treatment with traditional financial products will also boost mainstream acceptance. However, some investors worry that too lenient a tax policy could encourage speculation.

Expert opinion: Financial analyst Dr. Akabane said, “A reasonable tax policy is crucial for any emerging industry. This reform not only reduces costs for investors but also shows Japan’s commitment to supporting crypto. It will help position Japan as a leading crypto hub in Asia.”

2. SEC Drafts New Disclosure Rules for Crypto Exchanges

To strengthen oversight, the US Securities and Exchange Commission (SEC) is developing new disclosure requirements for crypto exchanges, demanding more transparency to protect investors.

Policy background: The SEC’s role is to ensure fair and orderly markets and protect investors. As crypto trading activity increases, the SEC sees the need for enhanced regulation to address emerging risks.

Policy details: The new rules will require exchanges to disclose trading data, security measures, user fund management, and how they prevent market manipulation and insider trading. They may also need to reveal standards and procedures for listing new cryptocurrencies. The rules are expected to take effect in 2026.

Market response: Crypto exchanges have mixed reactions. Some large exchanges welcome the increased transparency, which could improve industry credibility. Others worry about over-disclosure risking proprietary information. Investors generally support the rules, seeing them as beneficial for protection.

Expert opinion: Harvard Law Professor Jacob Wollman said, “The crypto market is still in early stages, lacking sufficient regulation and transparency. SEC’s new rules are a step in the right direction, helping to improve market order and investor confidence. But, SEC must balance investor protection with fostering innovation.”