Those who are long and trapped should tremble; this wave of interest rate hikes will have an unprecedented impact on the cryptocurrency market, brothers.

Analysis of the impact of Japan's interest rate hike on the cryptocurrency market on December 18-19

1. Interest Rate Hike Expectations and Background

The Bank of Japan will hold a monetary policy meeting on December 18-19, and the market expects the probability of an interest rate hike to reach 76%-90%. It is expected to raise the policy interest rate from 0.5% to 0.75%, which will be the highest level since 1995.

Core Background:

Japan's inflation has consistently exceeded the 2% target, wage growth is accelerating, and the economic recovery is solid, putting pressure on the yen's depreciation (which once fell to the 155-160 range), raising import costs and exacerbating inflation. The Bank of Japan has already conducted three interest rate hikes in March 2024 (0→0.1%), July (0.1→0.25%), and January 2025 (0.25→0.5%), and this will be the fourth time.

2. Short-term Impact on the Cryptocurrency Market (1-4 Weeks)

1️⃣ Carry Trade Collapse: Bitcoin and others are the first to be affected.

Carry Trade Mechanism: Investors borrow low-interest yen to invest in high-yield cryptocurrencies to obtain interest differentials. After Japan's interest rate hike, borrowing costs rise + yen appreciation, arbitrage profits disappear, forcing liquidation. Market Response: At the beginning of December, when interest rate hike expectations intensified, Bitcoin had already plummeted by 8.2%, Ethereum fell by 11.5%, and liquidation amounts reached $1.5 billion (85% were long positions). Priority Selling Logic: The high liquidity of cryptocurrencies and low repositioning costs make them the first choice for carry traders to liquidate.

2️⃣ Global Liquidity Tightening: Risk Assets Fall Broadly

As the last major central bank in the world to exit easing, Japan's interest rate hike marks a definite tightening of global liquidity. Japanese funds are flowing back from overseas to allocate high-yield Japanese government bonds, reducing incremental funds in the cryptocurrency market, leading to the withdrawal of existing funds. U.S. Treasury yields are rising (Japan is the largest overseas holder of U.S. Treasuries), and the global asset pricing benchmark is moving up, lowering cryptocurrency valuations.

3️⃣ Leverage Liquidation: Short-term Volatility Intensifies

Tight liquidity + falling prices → leveraged positions are forcibly liquidated → further exacerbating the decline, creating negative feedback. The liquidity at the end of the year is itself low, which may trigger a "carry trade massacre" similar to December 2022, and Bitcoin may temporarily fall below $80,000 $BTC $ETH #比特币波动性 #ETH走势分析