The Bank of Japan’s rate hike is finally about to happen. Once this economy—which has maintained ultra-low interest rates for years—shifts course, the impact on the global crypto market could be far greater than most people expect.

The core transmission path is actually not complicated: over the past decade, international capital has engaged in yen carry trades worth trillions of dollars, borrowing yen at near-zero cost and converting it to USD to allocate into high-yield assets like BTC and ETH. The logic behind this strategy is the persistent depreciation of the yen combined with ultra-low interest rates. Once a rate hike is implemented, both pillars collapse at once: financing costs rise directly, squeezing profit margins, and yen appreciation means more USD is needed to repay debts. When arbitrage opportunities disappear or even invert, a wave of position unwinding is almost inevitable.

Last August’s unexpected rate hike already gave the market a preview, as BTC’s single-day drop caught many off guard. If we truly enter a rate hike cycle this time, the effects could be even more systematic:

The first layer is liquidity withdrawal. The market depth previously sustained by yen liquidity will contract rapidly, buying support will weaken, and volatility will inevitably increase.

The second layer is a chain reaction of leveraged liquidations. Exchange rate fluctuations combined with falling crypto prices will trigger a cascade of liquidations among high-leverage positions, easily amplifying the downward trend.

The third layer is a sentiment-driven stampede. As the last major central bank to turn hawkish, a rate hike by Japan would signal the definitive end of the global era of easy money, making it highly likely that institutional funds will prioritize exiting risk assets for safety.

That said, these types of liquidity-driven crashes usually have little to do with industry fundamentals. If the drop is merely caused by short-term capital flows and results in oversold conditions, the clearing of panic sellers could actually present a window to allocate into quality assets. Historically, similar liquidity shocks have mostly turned out to be good entry points in retrospect. The key is whether you can withstand the volatility during the process and whether you have enough confidence in the quality of the assets.

At this stage, watching the yen exchange rate, large on-chain transfers, and inflows and outflows on major exchanges may be more valuable than just staring at price charts. The market will always provide an answer—it’s only a matter of time.