Why does the #Yen interest rate hike lead to declines in Bitcoin and Ethereum?

The last month of 2025 started with a flash crash, as the yen interest rate hike refers to the Bank of Japan raising the benchmark interest rate. Last year, the Bank of Japan also raised interest rates once, and this scenario has occurred multiple times, with the main reasons being:

"Yen carry trading," where Japan has maintained ultra-low interest rates, even negative rates (determined by Japan's economic situation). Investors and institutions borrow yen at low costs in large amounts, then convert it into dollars to invest in U.S. stocks, bonds, tech stocks, and virtual currencies. Wherever there is profit, money flows there, after all, the cost of borrowing is low, and profits can be made in any way.

"Yen carry trading" provides cheap liquidity for global risk assets, and a yen interest rate hike will increase borrowing costs, raising the cost of arbitrage. These funds need to be repaid in yen, so the first assets sold will be cryptocurrencies. Given that cryptocurrencies are riskier and have more inflated valuations compared to U.S. stocks, high-yield bonds, gold, and commodities, institutions will convert the assets sold into dollars to repay yen, leading to a natural crash in virtual currencies like Bitcoin.

Which cryptocurrencies are most affected by the yen interest rate hike? Primarily Bitcoin and Ethereum, because they have good liquidity and can be quickly cashed out; they also have the most arbitrage positions. The worst affected are altcoins, which have poor liquidity, institutions are unwilling to hold them, and when liquidity exits, the leverage squeeze results in the most severe declines.

This bull market has lost the seasonal altcoin rally; the bull market has ended and the beginning of a bear market is evident. Hold onto your USDT, focus on learning rather than trading, and quietly wait for opportunities in the bear market, as many people have been cut during the bull market, while there may be some opportunities in the bear market.