Recently, the global financial market has fluctuated greatly, and the cryptocurrency market has experienced dramatic ups and downs. Bitcoin once again fell out of the bull market range, triggering concerns about the "death cross". At the same time, the policy trends of the Bank of Japan have also attracted market attention.
The reduction of Japan's "yen carry trade" is considered the main reason for the global market downturn on August 5, and concerns about a US recession caused by lower-than-expected job growth and increased geopolitical tensions in the Middle East are just the fuse. The so-called "yen carry trade" refers to a trading strategy in which investors use Japan's ultra-low interest rates to borrow and lend to obtain interest rate differentials.
As the Bank of Japan (BOJ) made a historic interest rate hike in July, raising interest rates to -0.25%, this significantly promoted the strengthening of the yen exchange rate, but increased the cost of yen borrowing, ultimately leading to This resulted in a massive reduction in the yen carry trade. For investors who have long relied on Japan's ultra-low interest rate environment, the yen's appreciation effectively offsets the "nearly costless profits" they made by borrowing yen and converting it into dollars.
As the yen continued to rise, many yen carry trades faced “margin calls,” signaling the end of the era of “free” yen loans. As these margin loans were added, underlying assets were forced to sell, setting off a chain reaction in global markets.
Liquidation activities triggered by the yen carry trade further exacerbated market turmoil, with gold, stock markets and cryptocurrency markets all experiencing double-digit declines in just 24 hours. Bitcoin, as a popular global investment target, was also hit hard by the impact of the "yen carry trade." Data shows that on August 5, the exchange rate of Bitcoin against the yen fell by 15%, exceeding the decline against the US dollar during the same period.
In this regard, Shinichi Uchida, deputy director of the Bank of Japan, said today that if the market is unstable, the Bank of Japan will maintain its current loose monetary policy and will not continue to raise interest rates. Uchida's remarks are seen as a positive signal, helping Japanese stocks and the yen to get rid of the recent downward pressure, and also giving Bitcoin and other cryptocurrency markets a chance to breathe. Affected by this, Japanese stocks and the yen have risen. The Nikkei 225 index closed up 1.2%, hitting a new high in more than a month; the yen-dollar exchange rate also climbed to 0.7%. The cryptocurrency market also rebounded as a result, and Bitcoin re-entered the $57,000 mark.
However, although the Bank of Japan's comments boosted market sentiment, there are still concerns about Bitcoin's technical side, as Bitcoin is facing the risk of a "death cross". The so-called "death cross" refers to the short-term moving average (such as the 20-day line) falling below the long-term moving average (such as the 50-day line), which is usually seen as a signal of a bear market. Experts pointed out that if Bitcoin's "death cross" really appears, it may trigger a new round of selling.
However, some analysts believe that this "death cross" may just be a "bear trap". Boosted by the Bank of Japan's loose attitude, Bitcoin prices may rise against the trend, triggering a large-scale sell-off by short sellers, and eventually forming a "bear trap" behind the "death cross".
In addition, even if a "death cross" occurs, past experience shows that Bitcoin is not doomed to fail. In 2018 and 2022, Bitcoin experienced a "death cross" twice, but rebounded afterwards. Therefore, as long as the market risk preference does not change fundamentally, Bitcoin is still expected to demonstrate its risk resistance again.
In general, the change in the Bank of Japan's attitude has undoubtedly brought a ray of hope to the turbulent cryptocurrency market. However, whether it can help Bitcoin and other currencies rebuild a bull market still needs to be observed in the subsequent market trends. In any case, investors should remain vigilant, do a good job of risk management, and be cautious in dealing with the current extremely turbulent situation.
