The Bitcoin (BTC) value in yen dropped almost 15% on the Tokyo-based bitFlyer exchange, outpacing its 11% decline in dollar terms on Western exchanges. In just 24 hours, BitFlyer’s trading volume skyrocketed by 241% surpassing $220 million.
The more pronounced drop in Bitcoin’s yen price can be attributed to the yen’s sharp appreciation in the foreign exchange markets. Japan’s 0.25% interest rate increase last week bolstered the yen and resulted in a general sell-off in risk assets like Bitcoin.
Worst Session Since 2011
The market turmoil deepened after Tokyo’s markets opened on Monday, with Asian markets closing in the red. Japan’s Topix 100 index experienced its worst session since 2011, and the Nikkei 225 index fell by 12.4%. Crypto futures traders also faced significant losses, with liquidations on crypto-tracked futures exceeding $1 billion in the past 24 hours, marking their worst day since March.
In the past three weeks, the yen has surged nearly 10% against the US dollar, an extraordinary increase for the world’s third-largest reserve currency. The yen is often favored by traders worldwide to fund purchases of risk assets.
Interest Rate Hike in Japan
The Bank of Japan’s recent interest rate hike has boosted the yen’s appeal, leading to the unwinding of carry trades. This unwinding is thought to have sparked a broader sell-off in risk assets. Carry trading involves borrowing an asset or currency at a low interest rate, like the yen, and investing in an asset with a higher return rate.
The unwinding of the carry trade reflects the broader trend of popular macro trades being reversed. Multi-sigma moves across various asset classes have forced hedge funds to unwind positions to protect their profit and loss (PNL).
Japan has been a significant source of PNL income through long positions in USDJPY and the Nikkei, so the unwinding of these key sources suggests a very cautious risk sentiment and reduced risk appetite going forward.
Despite the gloomy market conditions, some analysts remain optimistic. They believe that the market could be nearing a local bottom in the coming days, potentially setting the stage for a rebound.
Other Developments
Financial technology company DeCurret Holdings announced plans last October for a Japanese yen-backed digital currency, named the DCJPY. Additionally, in February 2024, Japan’s Ministry of Economy, Trade and Industry (METI) launched a strategy to foster the growth of new businesses, with a particular focus on the Web3 ecosystem.
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