The end of negative news is positive news; the market quietly shifts in anticipation.
Today, the Bank of Japan officially announced an interest rate hike of 25 basis points, raising the policy rate to 0.75%, a new high in nearly 30 years. After the news was released, Bitcoin not only did not drop but instead remained firmly above $87,000, even slightly rebounding to the $87,500 level.
This trend confuses many newcomers; isn't an interest rate hike supposed to be bad news? Why is the crypto market not falling but rising instead?
In my opinion, this precisely indicates that the market is maturing. The end of negative news is positive news; when something everyone expects actually happens, it no longer has a damaging effect. Below, I share three key signals I have observed.
Signal One: The arbitrage model of borrowing yen to trade cryptocurrencies is retreating.
The most direct impact of Japan's interest rate hike is that arbitrage transactions borrowing yen to trade cryptocurrencies are no longer as profitable.
In the past, during the era of near-zero interest rates, institutions could borrow yen at almost no cost and then convert it to dollars to buy high-risk assets like Bitcoin. Now that Japanese interest rates have risen to 0.75%, although the absolute value is not high, the financing cost has indeed increased by 7.5 times.
The exit of this leveraged capital will indeed reduce market liquidity in the short term. But in the long run, market volatility will become healthier, no longer driven by leveraged capital's roller-coaster trends, but by sustainable movements truly driven by fundamentals and demand.
I noticed a positive change: although the overall market leverage ratio remains high, the proportion of long-term holders is steadily increasing. This indicates that more and more people truly believe in Bitcoin's value, rather than those who are just quick in and out arbitrageurs.
Signal Two: The differentiation between mainstream assets and altcoins is intensifying.
During this interest rate hike cycle, Bitcoin and Ethereum have shown obvious resilience, while many altcoins have performed poorly.
This differentiation tells me that capital is concentrating on quality assets. Bitcoin's safe-haven attributes as 'digital gold' are being reinforced, while Ethereum is also favored by institutions due to its solid ecological foundation.
In contrast, some mid and small-cap altcoins face significant pressure. Once the capital tightens, these illiquid assets are often the first to be affected.
My judgment is: it will be difficult to have a comprehensive bull market in the future, but rather a structural differentiation. Projects with real application scenarios, user bases, and income sources will continue to grow, while projects that purely speculate on concepts will gradually decline to zero.
Signal Three: Domestic funds in Japan may become a new variable
A detail that is easily overlooked is: the appreciation of the yen has actually lowered the cost for Japanese investors to allocate dollar-denominated assets.
As an important participant in the crypto market, the movements of domestic funds in Japan are worth paying attention to. Currently, the number of accounts opened at Japanese cryptocurrency exchanges exceeds 12 million, with users' custodied fund balances exceeding 5 trillion yen.
With the improvement of Japan's regulatory environment (such as the release of the 2023 Web3 white paper) and the optimization of tax policies, I believe that institutional funds in Japan may accelerate their entry.
These funds tend to pursue stable allocations and are more inclined towards mainstream assets like Bitcoin and Ethereum. This will further strengthen the advantageous position of mainstream assets.
Next operational thoughts
Based on the analysis above, my personal strategy is:
Reduce leverage, especially avoiding high-multiplication contracts. During the market deleveraging process, high-leverage players are most likely to become cannon fodder.
Focus on allocating Bitcoin and Ethereum, while also paying appropriate attention to DeFi projects with actual income sources and compliant RWA (Real World Assets) projects.
Adopt a batch-building strategy, without pursuing a single purchase at the lowest point. The impact of Japan's interest rate hike will continue to ferment, and the market may have fluctuations.
Pay special attention to the maximum pain point of $88,000 options. This technical level may become the focus of short-term competition between bulls and bears.
Conclusion: The market always grows amidst doubts.
Looking back, every turning point in macro policy has been a catalyst for market evolution.
When the Federal Reserve signaled tapering in 2013, Bitcoin fell 80% from its peak, but then entered a new bull market. In 2022, the Federal Reserve's aggressive interest rate hikes caused Bitcoin to drop from $69,000 to $16,000, but a year later it reached a new historical high.
This time, Japan's interest rate hike is no exception. The short-term pain is for the sake of longer-term healthy development.
When the arbitrage model of borrowing yen to trade cryptocurrencies retreats, when the market returns to fundamental analysis, and when value investing becomes mainstream, this is the market we truly hope to see.
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