1. The interest rate hike has landed, why did the market respond calmly?
Today (December 19), the Bank of Japan raised interest rates as expected by 25 basis points, increasing the policy rate from 0.5% to 0.75%, reaching a nearly 30-year high. However, unexpectedly, Bitcoin did not experience a panic sell-off, instead stabilizing around $87,500, and the Nikkei index even performed steadily.
This trend of 'bad news being fully priced in' is mainly due to two points:
The market had already priced in expectations: the probability of a rate hike had soared to 80%-90% before the meeting, institutions and large investors had already adjusted their positions to avoid risks, resulting in limited short-term selling pressure.
Yen has not appreciated significantly: the yen exchange rate is stable around 156, and the pressure from arbitrage trading liquidation is temporarily manageable.
But don't be too optimistic— the Bank of Japan has clearly hinted that if economic data supports it, rates may continue to rise to 1% in 2026. This statement is the real 'bomb fuse'.
2. The 'boiling frog' crisis of arbitrage funds.
Japan's long-term maintenance of zero interest rates has made the yen the cheapest financing currency in the world. Institutions are used to borrowing yen to buy high-risk assets (such as US stocks and cryptocurrencies) to earn interest rate spreads—this is known as 'arbitrage trading'. Now, financing costs have jumped from 0.1% to 0.75%, significantly compressing profit margins.
For example: borrowing 1 billion yen to buy Bitcoin, if the yen appreciates by 1%, even if Bitcoin does not drop, investors will be forced to liquidate due to exchange rate losses. What's more frightening is that this type of arbitrage has a scale of up to 3.4 trillion dollars; if withdrawals continue, Bitcoin may face a 15%-25% pullback pressure.
3. History does not repeat itself simply, but the rhythm is worth being cautious about.
Some have dug up historical data: after Japan's first three rate hikes, Bitcoin's average decline exceeded 20%. But why hasn't it collapsed this time?
Global liquidity hedging: expectations for Federal Reserve rate cuts are rising, partially offsetting the tightening impact of Japan.
Bitcoin's fundamentals are strong: nearly 24% of the supply is in a loss state, and the proportion of long-term holders is increasing, indicating improved stability of chips.
But beware of 'blunt knives cutting flesh'! Japanese government bond yields have broken 2%, and if they continue to rise, it will attract domestic funds back to Japanese bonds, further draining liquidity from risk markets.
4. My personal view: mid-term adjustments are inevitable, but don't panic!
Short-term sentiment: the market is prone to overreacting to the 'first rate hike', while underestimating the long-term threat of the 'rate hike path'. Today's slight rebound looks more like a 'dead cat bounce' rather than a trend reversal.
Mid-term data: closely monitor two indicators: yen exchange rate (if it breaks 150, arbitrage liquidation will accelerate) and US Treasury yields (if they rise passively due to Japanese selling, global assets will come under pressure).
Long-term narrative: Bitcoin's 'supra-sovereign asset' property will stand out amidst macro chaos. If Japan really raises rates to 1% by 2026, altcoins may bleed significantly, but Bitcoin will be supported by institutional hedging demand.
5. Summary: Opportunities arise from declines.
The Bank of Japan summarizes it in one sentence: 'If economic and price trends align with forecasts, we will continue to raise the policy rate.' Translated into plain language: the tap is tightening, and it will tighten even more.
For ordinary investors, my advice is:
Don't be fooled by short-term volatility, but make sure to reduce leverage to prevent a black swan event.
If Bitcoin falls to the $80,000-$85,000 range, it could actually be an opportunity to build positions in batches.
Pay attention to the movements of domestic funds in Japan—if they increase their Bitcoin holdings through compliant channels, they may become a new source of growth.
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