A scene in mid-December 2024 has triggered global market attention: Bitcoin dropped from $90,000 to $85,616 within 48 hours, a single-day decline of over 5%. In stark contrast, gold prices remained almost unchanged during the same period. This is not a storm within the crypto circle, but a "tsunami" from Tokyo — the Bank of Japan is about to implement the largest interest rate hike in nearly 30 years. Currently (January 2026), BTC has adjusted to around $88,540, with a market cap returning to $1.77 trillion, but the underlying mechanism warrants in-depth understanding.
Yen arbitrage unwinding triggers global liquidity shocks
It all begins with a seemingly unrelated financial instrument: yen arbitrage trading.
The Bank of Japan has maintained near-zero or negative interest rate policies for a long time, creating the cheapest borrowing source globally. Hedge funds, asset management firms, and trading desks leverage a seemingly simple strategy to