When the last batch of panic sellers handed over their chips at 3 AM, the market makers smiled in the shadows.
The market always repeats the same story: 'Buy on rumors, sell on facts.' This time, the Japanese interest rate meeting is no exception; most retail investors only see the superficial bearish news but fail to recognize the deeper game behind it.
As a cryptocurrency analyst who has experienced multiple bull and bear cycles, I must state a harsh truth: the market movements following Japan's interest rate hike are likely to be completely opposite to what most people expect.
01 The divergence between market sentiment and real logic
Right now, the entire market is shrouded in fear. According to Alternative data, the cryptocurrency Fear and Greed Index has dropped to the 'Extreme Fear' range of 20-23, and this situation has persisted for 47 days.
The logic chain of retail investors is simple and direct: Japan's interest rate hike → liquidity withdrawal → price drop. Therefore, they wait for the moment the rate hike is implemented to follow the trend and sell.
But the real logic is far more complicated. The market has already priced in advance; from early December to now, Bitcoin has fallen from a nearly 100,000-dollar high to around 90,000 dollars, having digested some of the interest rate hike expectations in advance.
More critically, the trading volume during the decline has shrunk dramatically. This clearly indicates that large funds are unwilling to give up their chips at low levels, and the current selling pressure mainly comes from the passive liquidation and panic selling of heavily leveraged retail investors.
02 In-Depth Interpretation of Japan's Interest Rate Hike: It's Not Just a Rate Issue
The market generally worries that raising Japan's interest rate to 0.75% will trigger liquidity tightening, but this view is one-sided.
The truly critical factor is the interest rate differential between the yen and the dollar. While Japan is raising interest rates, the Federal Reserve has entered a rate-cutting cycle, and these two forces are counteracting each other, creating a complex capital environment.
From the perspective of exchange rates, the interest rate hike in Japan will indeed push up the yen's exchange rate. Suppose you borrowed 15,500 yen to buy Bitcoin; the dollar cost you need to repay will increase. However, the issue is that the expectation of a rate cut in the US will weaken the dollar, further complicating the decision-making for arbitrage trading.
Therefore, it is one-sided to simply think that 'Japan's interest rate hike = liquidity drying up'. The real risk point is whether the Bank of Japan will release hawkish statements to strengthen subsequent interest rate hike expectations, rather than the single rate hike itself.
03 How Market Makers Use Interest Rate Hike Events to Harvest Retail Investors
The harsh reality of the cryptocurrency market is that it is driven by capital rather than logic. Market makers are well aware of this and have carefully arranged this 'interest rate hike trap'.
The typical process for market makers includes three stages: building positions, raising prices, and unloading. However, during market panic, market makers will do the opposite.
They will first sell part of their chips (Chip A) to trigger a price drop. Retail investors see the decline and panic sell, while market makers quietly buy back more chips (Chips A + B) at low levels. Through this repetitive operation, the chips in the hands of market makers increase rather than decrease.
This process is like 'knocking down the first domino'. Market makers only need to trigger the initial drop, and the mutual trampling among retail investors will complete most of the work. The result is that retail investors sell in panic while market makers accumulate chips at low levels.
04 History does not simply repeat itself, but it can be remarkably similar.
Looking back at the interest rate hike history of the Bank of Japan in 2024, we can find a regular phenomenon: after each interest rate hike is implemented, the market often shows a 'short-term decline, medium-term strengthening' trend.
For example, after Japan ended its negative interest rate policy in March 2024, Bitcoin dropped about 5% in the short term but then stabilized and rebounded. The unexpected interest rate hike in July led to a 10% drop in Bitcoin in a single day; however, in the following months, the market not only recovered but also reached new highs.
The current market structure is different from the past. The proportion of Bitcoin held by institutions has significantly increased, with about 30% of Bitcoin held by institutions and long-term investors. This portion of chips is relatively stable, reducing panic selling pressure.
At the same time, the US Federal Reserve's interest rate cut cycle provides liquidity support to the market. This pattern of 'Eastern tightening and Western easing' creates a market environment different from the past.
05 Judgments and Operational Recommendations for Future Market Trends
Based on the above analysis, I have a few judgments about the future market.
First, after the interest rate hike is implemented, there may be a rebound due to 'bad news exhausted'. The most panic stage in the market often occurs during the expectation phase; once uncertainty is eliminated, buying interest may quickly return.
Second, it is important to pay attention to key technical levels. The two-year moving average of Bitcoin at around 82,800 dollars is an important bull-bear dividing line, and this position may become strong support.
For different styles of investors, I recommend:
Short-term traders should avoid high-leverage operations before and after the interest rate hike event, as market volatility will exacerbate the risk of liquidation.
Medium to long-term investors may consider phased positioning, looking for buying opportunities in the midst of panic. The focus should not be limited to Bitcoin but also include mainstream assets that have been unfairly punished due to market sentiment despite having good fundamentals.
History keeps repeating itself, but there are always new participants who fall for it. When most retail investors sell out of fear, smart capital has already quietly positioned itself. Japan's interest rate hike may just be the catalyst for this round of washing out, rather than the end of the trend.
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