The last month of 2025 started with a flash crash, as the yen interest rate hike means the Bank of Japan is raising its benchmark interest rate. The Bank of Japan also raised rates once last year, and the same scenario has occurred many times before, mainly due to:
"Yen carry trade", for a long time Japan has maintained ultra-low interest rates or even negative rates (determined by Japan's economic situation). Investors and institutions borrow large amounts of low-cost yen and then exchange it for dollars to invest in US stocks, bonds, tech stocks, and cryptocurrencies. Wherever there is profit, money flows there, after all, the cost of borrowing is low, and it's easy to make a profit.
Yen arbitrage trading provides cheap liquidity for global risk assets. Yen interest rate hikes will raise borrowing costs, increasing arbitrage costs. These funds will need to be repaid in yen, so the first thing to sell will be cryptocurrencies. After all, compared to US stocks, high-yield bonds, gold, and commodities, cryptocurrencies are riskier and have more inflated valuations, leading institutions to exchange sold assets for dollars to repay yen, causing virtual currencies like Bitcoin to plummet.
Which cryptocurrencies are most affected by yen interest rate hikes? First, it is $BTC and $ETH , as they have good liquidity and can be quickly cashed out, with the most arbitrage positions. The hardest hit are altcoins, which have poor liquidity, institutions are unwilling to hold them, and during liquidity withdrawal, the leveraged sell-off results in the most severe declines.
This round of the bull market has ended the altcoin season, and the bull market is over with the signs of a bear market emerging. Hold onto your USDT, learn more, trade less, and quietly wait for opportunities in the bear market. After all, many people were cut in the bull market, while there are some opportunities in the bear market.
