Japan’s December rate decision could crash Bitcoin

Core Viewpoint - The Bank of Japan (BOJ) is expected to announce a potential interest rate hike on December 19, which could negatively impact Bitcoin and other risk assets due to historical market reactions to BOJ tightening cycles [1][5][6]. Group 1: BOJ's Interest Rate Decision - The BOJ's upcoming interest rate decision has raised concerns in global markets, particularly regarding the impact on Bitcoin and risk-on assets [1]. - Governor Kazuo Ueda has indicated that further rate increases are possible, leading to speculation among analysts and traders [1][5]. - A December poll indicated that 90% of economists expect the BOJ to raise short-term interest rates from 0.50% to 0.75% [5]. Group 2: Impact of Rate Hikes on Markets - The BOJ's policy decisions have a significant global impact due to the carry trade, where investors borrow Yen at low rates to invest in higher-yielding assets [2]. - When the BOJ raises rates, it can lead to liquidity outflows from various asset classes, including equities, bonds, and digital assets like Bitcoin [2]. - A sequence of events can occur following a carry trade collapse, including rising bond yields, a stronger Yen, increased costs for Yen-based debts, and forced liquidations of risk assets [4]. Group 3: Historical Context and Predictions - Historical data shows that Bitcoin has reacted negatively to previous BOJ tightening cycles, with significant price drops following rate increases [5][6]. - Analysts have drawn parallels to past events, such as the December 2022 meeting when the BOJ's actions caused market disturbances [6]. - Predictions indicate that if the BOJ raises rates again, Bitcoin could experience further declines, similar to past instances where rate hikes led to substantial price drops [6].