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Recently, there's an interesting phenomenon—whenever the Bank of Japan announces a rate hike, the crypto market becomes restless. It's no coincidence; there's a complete chain of capital behind it causing the movement.

First, let's talk about Japan's uniqueness. Over the years, Japan has maintained near-zero, or even negative, interest rates. In other words, borrowing money from the Bank of Japan almost costs nothing. Global investment institutions naturally won't miss out on such an opportunity—borrowing cheap yen, then investing in U.S. Treasuries, U.S. stocks, or directly pouring into the crypto market. The interest rate spread is their profit. This strategy is called yen arbitrage trading, and its scale is astonishing.

But this game has a fatal flaw—once Japan decides to raise interest rates, the entire logic collapses.

Looking at the surface: borrowing costs immediately rise. If you previously borrowed 1 million yen with near-zero interest, now you have to pay real interest. This directly eats into the arbitrage profit.

Looking deeper: raising interest rates usually causes the yen to appreciate. What does that mean? It means that the yen borrowed half a year ago now needs more USD or other currencies to pay back. Investment institutions face dual pressure—rising interest costs and increasing exchange costs. The arbitrage space doesn't just shrink; it disappears altogether.

So, what should they do next? Institutions are forced into "debt repayment mode." Assets like Bitcoin and Ethereum they hold must be sold. Sold for USD or stablecoins, converted back into yen, and honestly repaid to the Bank of Japan. Think about it—if hundreds of billions or even trillions of dollars of arbitrage positions are liquidated simultaneously, what does that mean for the crypto market? It’s a concentrated selling pressure.

When selling pressure hits, technical and fundamental factors take a backseat. The market can easily experience a sharp decline in the short term—some call this a "mini black swan."

Even more severely, this selling pressure often triggers chain reactions. Some aggressive traders see the decline and start stop-loss orders, forced liquidation of leveraged positions, which further accelerates the drop. Within a few hours, the market may undergo significant volatility.

In plain terms, when the Bank of Japan presses the rate hike button, global institutions start selling assets to raise cash. As high-risk, highly liquid assets, cryptocurrencies are often the first to be affected.

This logic is quite clear. Next time you see any movement from the Bank of Japan, stay alert. Whether it's expectations of a rate hike or actual implementation, it could become a disturbance in the crypto market. Do some homework in advance, adjust your positions accordingly—that's the way to respond.