The Federal Reserve is opening the door to interest rate cuts and releasing liquidity, while at the same time, the Bank of Japan is sharpening its knives, preparing to end decades of negative interest rate policy. Behind this pattern of easing and tightening lies what could unsettle veteran players in the crypto market? Simply put, it’s the shift in global capital flows and Bitcoin’s extreme sensitivity to liquidity fluctuations.

To clarify the cause and effect: for years, borrowing in yen was almost free. Many investors engaged in yen arbitrage — borrowing yen, converting to USD to buy Bitcoin or US stocks, and earning stable interest rate spreads. This game was fun, and even ordinary retail investors participated. But now, the Bank of Japan has started raising interest rates, causing borrowing costs to spike, and with the need to hedge against yen appreciation and exchange losses, these players are forced to quickly sell Bitcoin to convert back to yen and repay their debts.

Does this sound like an isolated phenomenon? Wrong. The global yen arbitrage trading volume exceeds $1 trillion. Once these positions are closed en masse, the crypto market will experience a “bloodletting.” Assets like Bitcoin, which are most sensitive to capital flow changes, will be the first to be sold off. From another perspective, the Bank of Japan’s decision to raise interest rates is like pouring a bucket of cold water into the oil pan of the crypto world.