At the monetary policy meeting held by the Bank of Japan on December 18-19, the benchmark interest rate was raised from 0.5% to 0.75%. This isn’t just a simple 25 basis point adjustment—they also announced plans to hike rates every six months going forward, with increases scheduled for June 2026, January 2027, and July 2027. What does this mean? The long-term liquidity tightening cycle has officially begun.

Where is the crypto market’s Achilles’ heel? Simply put, it’s extremely sensitive to liquidity. Remember when the Fed aggressively raised rates in 2022 and Bitcoin plunged from $60,000 all the way down to $16,000? That was the result of dollar liquidity being drained. Now, Japan’s move is even tougher—over the past decade, global carry trades (borrowing low-interest yen to invest in high-risk assets) have fattened up US stocks and the crypto space. Yen rate hikes will force this hot money to flow back home. When the funds withdraw, who will absorb the selling pressure?

On-chain data is even more concerning. Leverage ratios on exchanges remain high, and many long positions are still stubbornly holding on. But once macro-level liquidity shocks filter through, high-leverage positions will be the first targets for liquidation. Even worse, yen appreciation will directly crush those carry trades that borrowed yen to speculate in crypto, and the cascade of liquidations could happen faster than expected.

Historically, when central banks turn hawkish, markets usually price it in ahead of time. During the Fed’s 2022 rate hike cycle, crypto assets began to crash even before official hikes started. Japan’s long-term rate hike plan is even more explicit, so market expectations will react even earlier. The current weakness in coin prices may just be an appetizer.

Coping strategy? Reducing leverage is the top priority—cut high-risk positions where needed. Macro liquidity tightening isn’t something that can be shrugged off once short-term bad news is digested—this is a turning point for the entire cycle. Crypto’s ups and downs have never been isolated. When the Bank of Japan’s “liquidity drain pump” is running at full speed, all high-risk assets will need to be repriced. Don’t try to fight the trend with wishful thinking—whether your account survives this cycle is a decision you need to make right now.