How does Japan's rate hike shake global liquidity? The economic logic behind Bitcoin's three downturns

Question

【CryptoPunk】Since last year, the Bank of Japan has stepped out of its long-term ultra-loose monetary policy phase. Two rate hikes in March and July last year, along with a new round of adjustments in January this year, have had a significant impact on global financial markets.

The logic behind this is quite straightforward: over the past few decades, a large part of the cheap capital in global markets has originated from Japan. Japan has implemented zero interest rate policies and even negative interest rates for decades, combined with an extremely loose monetary environment. The entire financial system is like an ATM constantly supplying cheap liquidity. These cheap funds flow into various assets worldwide, including the crypto market.

Data can illustrate the point. Bitcoin’s performance after these three rate hikes was very direct—dropping 23.06%, 26.61%, and 31.89% respectively. Each time Japan’s policy shifted, Bitcoin experienced a clear correction. The reason lies in the tightening of liquidity; the exhaustion of cheap funds inevitably reshapes market participants’ risk preferences.

However, this time the situation might be different. Market expectations before the latest rate hike were already quite sufficient, and investors had already priced in this policy expectation. Whether this rate hike will cause a sharp decline like before is still uncertain.

GasFeeCryBaby · Accepted Answer

Japan is playing people for suckers on global Liquidity, our cheap money is running out.

notSatoshi1971 · Answer

Japan&#39;s recent actions have directly hit the Achilles&#39; heel of the crypto market. Once the cheap liquidity is cut off, the coin price plummets. This logic is really sound.

FastLeaver · Answer

Japan's recent moves have directly shut down the world's "money printer" for liquidity, and it's inevitable that Bitcoin will suffer as well. When cheap funds disappear, everyone feels the pain.

UncleLiquidation · Answer

Japan has really ruined the entire liquidity feast this time. Speaking of which, our crypto circle has been relying on this cheap capital to blow bubbles for so many years.