The seemingly distant Bank of Japan decision, why does it always shake the crypto world?

Recently, this phenomenon has become increasingly obvious. When Japan signals a rate hike, the crypto market starts to fluctuate. On the surface, there seems to be no connection, but in reality, there is a complex global capital logic behind it. Today, let's analyze this issue.

**Where does the 20 years of "free money" come from**

Over the past twenty years, Japan has maintained zero interest rate or even negative interest rate policies. What does this mean? It means that capital is extremely cheap. International investors have seized this opportunity by engaging in yen arbitrage—borrowing low-cost yen and then exchanging it for US dollars to seek high-yield assets worldwide.

Where did this money go? It can be divided into three stages:
- Conservative funds buy US bonds
- Aggressive funds speculate on US stocks
- The most aggressive? Flow into the crypto market

The crypto world is the final destination for this "excess liquidity." The higher the risk, the more attractive the returns, and the more capital flows here.

**The good days are over**

Playing this game requires two essential conditions: costs remain extremely low, and exchange rates are relatively stable.

The rate hike by Japan directly breaks this premise. Borrowing costs rise, and the era of zero-cost funding truly ends. At the same time, the yen begins to appreciate, and arbitrage profits are eaten up by exchange rate fluctuations. The "free lunch" is really gone, and now you have to pay.

**Why does capital flow impact crypto?**

When arbitrage opportunities disappear, international capital reacts very directly—runaway.

The entire process of closing positions looks like this:
Crypto assets → exchange for USD → exchange back to yen → repay loans

Hundreds of institutions doing this simultaneously create concentrated selling pressure. The market faces huge short-term selling pressure, which is what we see as a "crash."

**How to understand this**

There are three key points:

First is a global perspective. The crypto market has long been deeply linked with the global financial system, and central bank policy trends cannot be ignored.

Second is liquidity logic. The inflow and outflow of cheap funds have a huge impact on market sentiment. This is not just psychological; it is a real tide of capital.

Third is risk control awareness. When macroeconomic environments change, maintaining flexible position strategies and avoiding overexposure are essential lessons.

Ultimately, Japan's rate hike is like knocking over the first domino, which through a complex chain of capital links ultimately impacts the market. Understanding this mechanism can help us make fewer mistakes amid volatility.