Why did the yen interest rate hike affect the crypto world?

Because in the past few years, the cheapest money in the world has been in Japan. Many institutions and large players first borrow yen at extremely low interest rates, convert it into US dollars, and then leverage into Bitcoin, Ethereum, and various altcoins to speculate. This operation is called "yen arbitrage trading," with a scale that is astonishing, with two to three percent of the funds flowing into crypto. In simple terms: the bull market in the crypto world over the past few years has been supported by cheap money from Japan.

Now that Japan is raising interest rates, it means borrowing yen has suddenly become more expensive. The money that was almost at zero cost is now costing more; who would still want to play? They can only hurry to sell coins for cash and pay back the yen. With trillions of dollars in funds fleeing at once, how could the market not crash? This is not new. Last August, when the Bank of Japan unexpectedly raised rates, Bitcoin dropped from 65,000 to 49,000 in one day, and the global market lost 3 trillion dollars. This time, it will probably be even harsher. For ordinary people, this wave of decline feels like a series of knives: liquidity is being pulled away, and the water in the pool suddenly decreases. Emotions collapse, big players flee, retail investors panic, the media calls it a bear market, and more people cut losses, creating a snowball effect.

Why is this particularly dangerous this time?
The Federal Reserve may cut interest rates, while Japan raises rates, causing a rift in the direction of funds, which is what arbitrage traders fear the most. The overall leverage in the crypto world is higher than last year, and even a slight fluctuation can trigger a wave of liquidations. There will also be a large number of options expiring in mid-December, which could exacerbate the sell-off. But history tells us: after a crash, there is often a golden pit. Every time such a sharp drop caused by arbitrage withdrawals occurs, it is usually followed by an opportunity for large funds to buy the dip.

What should ordinary people do?
Hold onto Bitcoin and Ethereum firmly, don't panic sell at the lows and hand over your assets to institutions. Focus on the December 18-19 Bank of Japan meeting, and try to reduce leverage beforehand, especially on altcoins. Retail investors should be "patiently waiting for opportunities, and act decisively and steadily."