Why does Japan's interest rate hike policy always cause waves in the crypto world? There is actually a pattern behind it.

For a long time, Japan maintained near-zero or even negative interest rates, creating a huge spread with the continuous rate hikes in the US and Europe. This difference has created a black hole for capital—investors can borrow yen at extremely low costs, convert to dollars, and buy US bonds, US stocks, or even rush into the cryptocurrency market. A major source of liquidity in the crypto space comes from this "spillover liquidity."

The problem is, once Japan starts raising interest rates, this logic collapses. Borrowing yen is no longer cheap, and the arbitrage space is ruthlessly squeezed. Even worse, rate hikes are usually accompanied by yen appreciation. When arbitrageurs want to repay their debts, they need to exchange more dollars for yen—this reverse transaction can eat into their profits or even lead to losses.

That's when a "black swan" can appear. When arbitrage becomes unprofitable, institutions and funds must urgently withdraw from high-risk assets to repay debts. Their process is simple and brutal: sell Bitcoin → exchange for USD → exchange for yen to repay loans. Once this concentrated sell-off begins, the crypto market is prone to short-term plunges.

Essentially, Japan's rate hike closes the door on cheap global capital. The crypto space, which has been nourished by this money, is the first to suffer because once liquidity is drained, the decline is often not gentle.