If the Bank of Japan really goes ahead with raising interest rates, the crypto market could shake three times over. Why do I say that?

Let’s talk about the invisible giant—the global yen carry trade. How big is it? Over $19 trillion. For decades, it’s been like a hidden financial artery, continuously pumping funds into high-risk assets worldwide. US stocks, emerging markets, cryptocurrencies—they’ve all been boosted by this flow of “cheap yen.”

The rules of the game are simple: borrow yen at almost zero cost, swap it for dollars or other currencies, and invest in higher-yielding assets. Hedge funds have played this trick for decades—it’s like easy money.

But the situation has changed.

What happens if the Bank of Japan starts raising rates consistently? Three things hit at once:

First, borrowing costs skyrocket. Borrowing yen used to be nearly free; now you have to pay interest.
Second, the yen surges. As soon as there’s an expectation of rate hikes, the yen strengthens. Institutions not only have to repay more expensive yen, but also suffer exchange rate losses when selling assets to buy back yen. It’s a double blow.
Third, forced liquidations. With higher costs and a stronger yen, assets leveraged with yen must be sold off. BTC, US stocks, emerging market bonds—anything fueled by the yen could face indiscriminate selling.

Remember December 2022? The Bank of Japan suddenly tweaked its Yield Curve Control (YCC) policy, and global markets crashed instantly. No one was prepared. This time, while there are expectations, the timing is set for December 19—when year-end liquidity is at its driest. Any move beyond what the market expects could trigger a stampede.

Now look at BTC’s current situation—it’s like the calm before a “perfect storm”:

On the macro level, it’s a double whammy. Japan is tightening liquidity, and the Fed in the US refuses to ease. Both of the world’s major liquidity taps are being turned off at the same time—where is the money going to come from?

BTC, as the “ultimate risk asset,” is extremely sensitive to liquidity changes. Unlike traditional stocks, it doesn’t have earnings to support its price; it’s entirely driven by capital flows and market sentiment. When liquidity tightens, it’s often the first to get hit.

On-chain data backs up these concerns: ETFs are seeing sustained net outflows, large-holder addresses are decreasing their positions, and derivatives funding rates have turned negative. Smart money is already pulling out.

Looking at the entire crypto ecosystem, industry weakness isn’t just a Bitcoin problem. Ethereum, BNB, SOL—they’re all feeling the impact of tightening liquidity. New leadership can hardly turn things around, because the problem isn’t with any single project, but the entire macro environment.

So, the Bank of Japan’s December 19 meeting is definitely worth close attention. If they really go ahead with a rate hike, it could mean not just the end of the yen carry trade, but also a major trigger for a sharp adjustment in global risk assets—especially cryptocurrencies.