Will the Bank of Japan's rate hike severely impact Bitcoin? An analysis of liquidity shocks after three rounds of rate hikes

【BlockBeats】The Bank of Japan has been quite active in raising interest rates over the years. From 2024 to early this year, in just over a year, it has implemented three rate hikes—once in March, once in July, and again in January. At first glance, there’s nothing particularly unusual, but if you understand the true mechanics of global finance, you’ll realize that Japan’s actions have had a significant impact on Bitcoin and the entire crypto market.

There’s a key issue behind this: over the past few decades, not all of the global capital has flowed out of the US. You might not expect it, but Japan has actually served as a “cheap funding pool” for the global financial system. How is that possible? The Bank of Japan has long maintained zero interest rate policies and even negative interest rate policies (NIRP), combined with an extremely loose monetary environment. This means global investors can borrow money in Japan at very low costs and then seek higher-yield assets worldwide—including Bitcoin.

Now, here’s the problem: once Japan starts raising interest rates, this source of cheap capital will tighten, and global liquidity will inevitably contract. The data shows:

• After the March rate hike, Bitcoin dropped 23.06%
• After the July rate hike, the decline widened to 26.61%
• Following the latest January rate hike, Bitcoin fell by 31.89%

The declines are getting sharper each time, reflecting a continuous withdrawal of liquidity.

But this time is a bit different. The market had already fully priced in the expectation of this rate hike recently, and investors had prepared psychologically in advance. So, whether this round of rate hikes will cause a big crash like the previous two is really uncertain. The market may have already “priced in” the bad news.