Why did the yen interest rate hike impact the cryptocurrency market?
Because for the past few years, the cheapest money in the world has been in Japan.
Many institutions and large players first borrowed the very low-interest yen, converted it to dollars, and then rushed into Bitcoin, Ethereum, and various altcoins to leverage and trade.
This operation is called 'yen arbitrage trading,' and the scale is frightening, with two to three percent of funds flowing into cryptocurrencies.
In simple terms: the bull market in the cryptocurrency world over the past few years has been supported by Japan's cheap money.
Now that Japan is raising interest rates, it means borrowing yen has suddenly become expensive.
What was almost zero-cost money is now more costly; who would still be willing to continue trading?
They can only rush to sell coins for cash and pay back the yen.
With trillions of dollars fleeing together, how could the market not collapse?
This is not new. Last August, the Bank of Japan unexpectedly raised rates once, and Bitcoin dropped from $65,000 to $49,000 in a single day, wiping out $3 trillion from the global market. This time, it may only get worse.
For ordinary people, this wave of decline feels like a series of knives:
Liquidity is being drained, and the water in the pool suddenly decreased.
Leverage is exploding; many in the cryptocurrency world are using 50x or 100x leverage, and even a slight drop triggers forced liquidations, leading to worse stampedes.
Emotions have collapsed, large players are fleeing, retail investors are panicking, the media is calling it a bear market, and more people are cutting their losses, making the snowball bigger.
Why is this particularly dangerous this time?
The Federal Reserve may lower interest rates, while Japan is raising them, creating a rift in capital direction, which is what arbitrage traders fear the most.
The overall leverage in the cryptocurrency market is higher than last year; even a slight fluctuation can trigger a wave of liquidations.
In mid-December, a large number of options will expire, adding fuel to the fire.
But history tells us: after a collapse, there is often a golden opportunity.
After the big drop last August, Bitcoin rebounded 20% in three weeks.
Each time there is a crash caused by arbitrage withdrawals, there's usually an opportunity for large funds to buy the dip.
What should ordinary people do?
Keep some stablecoins on hand; don’t recklessly go all in.
Hold onto Bitcoin and Ethereum firmly; don’t panic sell at the low points to give them to institutions.
Focus on the Bank of Japan meeting on December 18-19, and try to reduce leverage beforehand, especially on altcoins.
What retail investors should do is 'patiently wait for opportunities and act decisively and accurately.' Follow Bai Yue for daily real-time strategy shares and anti-loss guides!
