The Bank of Japan officially bids farewell to the ultra-loose monetary policy era starting in 2024, initiating its first rate hike cycle in 17 years. This move is much more profound than it appears—it has almost become the most invisible killer of the global crypto market over the past two years.

Last March, the BOJ ended eight years of negative interest rates, raising the policy rate from -0.1% to 0~0.1%. The market reaction was orderly, with Ethereum only dropping 5-10%. But July was different. On July 31, the central bank raised rates by 25 basis points to 0.25% and announced a balance sheet reduction plan. This unexpected combination of measures directly shattered the rhythm of global risk assets—Ethereum plummeted from $3,300 to around $2,100 within days, a decline of over 35%. This was no gentle adjustment.

In January this year, the BOJ raised rates again by 25bp to 0.5%. As a result, Ethereum experienced six to eight consecutive down days, with a total decline of about 30% in a week, while Bitcoin fell 31% in the same period. The logic behind the data is quite clear: rate hikes push up the yen’s value, breaking the long-standing "yen arbitrage" game.

What is yen arbitrage? Simply put, borrowing yen is cheap, and using low-cost yen to invest in high-risk, high-reward assets like Bitcoin and Ethereum. When the yen appreciates and interest rates rise, these positions are forced to be closed, and funds rapidly exit the crypto market. How significant is this transmission chain’s pressure on the market? Every clear rate hike in the past two years has almost been accompanied by a 20-35% correction, which says a lot.

In mid-December, the market widely expects the central bank to raise rates again at the December 18-19 meeting to 0.75%, creating a 30-year high. Meanwhile, the crypto market has already been under pressure—Ethereum has fallen below $3,000, and Bitcoin has returned to around $80,000.

In the short term, this volatility is likely to continue. The linkage between the yen exchange rate trend and the tightening of global liquidity has become a key risk point to watch closely.