#BTC
The countdown for interest rate hikes has begun:
Bank of Japan Governor Kazuo Ueda has just released a key signal: The meeting on December 19 may initiate interest rate hikes, which would be the largest move since 1995. The market is already in a frenzy, but the most dangerous aspect may not be the stock market, but rather the cryptocurrency space, especially Ethereum.
The probability of a rate hike has soared to over 80%, with a possible increase of 25 basis points, or even a drastic hike of 50 basis points. Why is ETH the first to bear the brunt? Behind it is the collapse of the largest yen arbitrage trade globally, where investors borrow yen at nearly zero cost and flood into high-yield assets like U.S. stocks and cryptocurrencies. As ETH is the hardest hit area of DeFi leverage, once arbitrage retreats, it will face a series of liquidations.
History always sounds the alarm: In July 2024, the Bank of Japan raised interest rates, and Bitcoin fell by 23% in a single day, with over 20 billion liquidated across the network. Although this time is different, the market has partially priced in the situation in advance, and the number of unliquidated leveraged contracts has decreased by 40% from its peak, but the risk has not diminished at all. Data shows that nearly 1 billion in leveraged positions still hang in the air, and Ethereum's key support level is at 2600. Once it falls below this level, it could trigger a highly risky avalanche of sell-offs.
Ethereum's Achilles' heel lies in the DeFi ecosystem: Layer upon layer of leverage and concentrated institutional holdings make it more sensitive than BTC and SOL. If the interest rate hike is confirmed on December 19, a wave of arbitrage trade liquidations may sweep the market instantly; however, if it is unexpectedly delayed, short covering may bring about a rebound. However, do not blindly bottom fish; before the meeting, any leveraged position is like walking on thin ice.
