We have reviewed the encryption tragedies in history before. Today, August 5, 2024, everyone can be said to have witnessed history.
But today's August 5th incident was the first time in history that crypto assets plummeted due to global financial policies.
Let’s look at the previous crash:
The Mentougou incident in 2014 was caused by a hacker attack.
In 1994 of 2017 and 1950 of 2021, the mainland government introduced repressive policies specifically targeting the encryption industry.
The 312 in 2020 was due to the epidemic
The 22-year bear market was caused by the crypto industry’s own actions. The emergence of two scums, Luna and FTX, caused investors to lose confidence in crypto.
Today's 8.5 is due to the sudden interest rate hike by the Bank of Japan, and the crypto market and the Nikkei index have shown a highly synchronized trend:
They all started to plummet today, and the cumulative decline in the past five days has been around 18%.
The cause of the incident can be traced back to July 31, when the Bank of Japan raised its policy interest rate from 0% to 0.1% to around 0.25%. This was the first interest rate hike since Japan ended its negative interest rate policy in March this year.
Before the announcement, the crypto market was still enjoying the Trump rally, as he had just supported crypto at the just-concluded Bitcoin conference. Then Bitcoin continued to fall, and plummeted today:
Many friends may ask, if the Bank of Japan raises interest rates, will the impact be so big?
some!
Because the interest rate for borrowing yen from the Bank of Japan has been zero for a long time, many people borrow yen to invest. Isn't buying U.S. bonds a stable arbitrage? Of course, some funds will flow into assets such as stocks/cryptocurrencies to pursue higher returns.
After the Bank of Japan announced an interest rate hike, the Federal Reserve said two days ago that it was "open to" cutting interest rates in September.
Now it’s good: Japan raises interest rates, and the Federal Reserve cuts interest rates.
As a result, a large number of investors who had previously borrowed Japanese yen and exchanged them for US dollars to earn the interest rate difference had to sell their US dollar assets and repay Japanese yen.
As a result, the exchange rate of the Japanese yen soared by 12% in just one month!
What does this mean? If you buy U.S. bonds for arbitrage, the fluctuation of the Japanese yen exchange rate in this month can wipe out more than two years of your earnings!
If the risk of the Japanese yen exchange rate is so great, why do so many people still borrow Japanese yen?
Two reasons:
There is no foreign exchange control in developed countries now. The borrowed Japanese yen can be exchanged for US dollars/pounds, etc. without any restrictions.
Japan has the highest national debt ratio in the world, far ahead of other countries. Once Japan raises interest rates, the debt burden will overwhelm the Japanese government in a minute.
It is for this reason that even if the Federal Reserve raises interest rates to more than 5%,
The Bank of Japan can only maintain low interest rates, and it is for this reason that speculators from various countries have flocked to Japan to borrow money.
Just in May, BitMEX founder Arthur Hayes tweeted that a weak yen could push Bitcoin to $1 million.
However, the Bank of Japan and the yen, which were so weak, suddenly became strong, and they became strong just when the Federal Reserve was about to weaken.
This action also brought down the Japanese stock market, because many Japanese investors used borrowed money to invest in stocks:
Personally, I think that compared with previous market trends, this round of trends may refer to 314.
Not only because of the sudden outbreak, which is somewhat similar to the sudden interest rate hike by the Bank of Japan, but also because the Federal Reserve subsequently took interest rate cuts:
In the 312 tragedy in 2020, the price of Bitcoin first dropped in half from 10,000 U.S. dollars to 5,000 U.S. dollars, and then rose to 30,000 U.S. dollars by the end of the year.
Now look at it, it has only dropped from 70,000 to 50,000, which is a little bit worse than 312.
However, Bitcoin ETFs have been approved this year, and Bitcoin rose too fast before, so institutional market makers in the United States had no chance to build positions.
If the United States really wants to establish a federal reserve for Bitcoin, wouldn’t it be taking advantage of this opportunity to crash the market and trick the “leeks” out of their hands?
