Markets are preparing for a potentially decisive week for Bitcoin as the Bank of Japan (BOJ) heads into its policy meeting on December 18–19. A nearly certain interest rate hike is expected.
The prediction markets and macro analysts arrive at the same conclusion: Japan is raising interest rates by 25 basis points. Such a solution could have effects far beyond Japan's bond markets, particularly on global risk investments like Bitcoin.
The Bank of Japan's interest rate hike brings bitcoin's liquidity sensitivity back into focus
According to Polymarket, there is currently a 98% probability that the BOJ will raise rates, and only 2% expect rates to remain unchanged.
The general sentiment among crypto analysts is that this is not good for Bitcoin. The leading cryptocurrency is already trading below the psychological threshold of $90,000.
If the interest rate hike occurs, Japan's benchmark interest rate would rise to 75 basis points, which is the highest level in nearly twenty years. Although it is modest internationally, this is still a significant change, as Japan has long been the world's most important source of cheap money.
For decades, institutions have borrowed yen at very low interest rates and directed capital to international equity, bond, and crypto markets. This strategy is known as the yen carry trade. Now this trade is under threat.
"For decades, the yen was a currency that was borrowed and converted into other currencies and assets... Now this carry trade is diminishing as Japanese government bond yields rise rapidly," wrote analyst Mister Crypto.
If interest rates continue to rise, leveraged positions in yen may need to be unwound, causing investors to sell their risk assets to pay off their debts.
Liquidity fears are growing amid Bitcoin's BOJ history
The historical background causes nervousness in the crypto markets. The price of Bitcoin is currently $88,956, which is a 1.16% decline over the last 24 hours.
Traders are less interested in the current price and more in what has happened after previous BOJ rate hikes.
In March 2024, the price of Bitcoin fell by about 23%.
In July 2024, the decline was about 25%.
After the interest rate hike in January 2025, BTC fell over 30%.
Many traders see a troubling pattern here and urge investors to prepare for volatility this week.
"Every time Japan raises rates, Bitcoin drops by 20-25%. Next week they will raise rates again to 75 basis points. If the pattern repeats, BTC will drop below $70,000 on December 19. Position yourself accordingly," warned analyst 0xNobler.
During this week, several analysts consider the Bank of Japan to be the biggest threat to Bitcoin's price, and a new possible move to the $70,000 level is visible.
Similar estimates are present in other crypto investors' accounts. A possible drop below $70,000 is often mentioned, should history repeat itself. This would correspond to a decline of about 20% from the current level.
However, not everyone believes that a BOJ rate hike would necessarily mean a decline. In a competing macro narrative, it is argued that Japan's tightening monetary policy, combined with interest rate cuts from the U.S. central bank, could ultimately be positive for the crypto market.
Macro analyst Quantum Ascend views the situation more as a system change than a liquidity shock.
According to this view, the Fed's interest rate cuts would bring dollar liquidity and weaken the dollar, while the BOJ's gradual interest rate hikes would strengthen the yen without a significant impact on global liquidity.
According to Quantum Ascend, as a result, capital is shifting to riskier assets that have asymmetric upside potential – the "sweet spot" of crypto.
However, the immediate conditions remain fragile. The Great Martis warned that the bond markets are already forcing the BOJ to act.
"This could trigger a liquidation of carry trades and cause chaos in stocks," the analyst warned.
The analyst also referred to the expanding top structures of stock indices and the rise in global interest rates as increasing stress in the markets.
At the same time, Bitcoin's price movement reflects uncertainty. Throughout December, the price of the leading cryptocurrency has remained nearly unchanged, which analysts describe as a volatile period at the end of the year.
Especially analyst Daan Crypto Trades highlights low liquidity and a lack of conviction before the year-end holidays.
As stock markets give top signals, interest rates rise, and Bitcoin has historically been sensitive to liquidity changes caused by Japan, the BOJ's decision becomes one of the year's most significant macro drivers.
Whether the result is a new rapid drop or a foundation for a post-volatility crypto price rally may depend less on just the interest rate hike and more on how global liquidity reacts in the coming weeks.
