Hedge Funds Hammer Japanese Yen and Probably Bitcoin: Why Crypto Holders Feel the Shock

Core Insights - Hedge funds have established one of their largest bearish positions against the Japanese yen, with approximately 85,000 net short contracts, indicating increasing pressure on the currency [1][2] - The unwinding of the yen carry trade, which has reached around $500 billion since 2011, has significant implications for various asset classes, including cryptocurrencies [3][4] Group 1: Yen Short Positions - Hedge funds currently hold around 85,000 net short yen contracts, marking one of the most substantial bearish positions since 2024 [2] - The yen has been used as a cheap funding currency for carry trades, leading to a massive increase in short positions as traders anticipate further declines [3] Group 2: Impact on Cryptocurrencies - The rise in Japanese government bond yields, with the 10-year JGB reaching approximately 1.84%, has triggered a sell-off across multiple asset classes, resulting in over $640 million in crypto liquidations [5] - Bitcoin experienced a significant drop, falling below $87,000, with around $527 million in long positions liquidated in a single day due to forced deleveraging [6] - The correlation between the yen's performance and cryptocurrency markets highlights how foreign exchange stress can impact riskier assets like Bitcoin [4][7]