At first glance, there appears to be no logical connection between the bureaucratic decisions of the Bank of Japan in Tokyo and the price of Bitcoin (BTC) on the global market.
But in the globalized world of finance, these two distant points are An invisible but powerful thread: a mechanism known as fluidity carry trade.
To understand this phenomenon, It is necessary to imagine that Japan is a good source of economic financing.. For decades, the country kept interest rates near zero or even negative. In other words, it has become much cheaper to borrow money in yen. Large investors took advantage of this situation and demanded huge loans in Japanese currency.
This is where Bitcoin comes into play. These investors did not hold onto the yen. They exchanged it for dollars and other currencies and invested it in assets that offered higher returns, such as technology stocks and digital assets.
This strategy is to borrow cheaply and invest expensively. carry trade. Essentially, part of Bitcoin’s price rise in recent years has been driven by the constant influx of cheap capital from Asia.
What happened recently is that Japan decided to turn off that faucet a little bit. As reported by CriptoNoticias this morning, Raising interest rates to 0.75% (highest since 1995) increased the cost of these loans. For many investors, this business is no longer very profitable.
Japanese interest rates open up a dangerous scenario for Bitcoin
What are the risks in this scenario? If the cost of money rises sharply, investors could be forced to sell their most liquid and volatile assets, such as Bitcoin, to pay off their yen-denominated debt.
This is the effect of communication vessels. The withdrawal of liquidity on one side (Japan) reduces the level on the other side (digital asset market)..
Fortunately, in this recent case, the market did not collapse (at least for now) because another factor came into play: the US economy. The reported US inflation rate (2.7%) suggests that a weaker dollar could offset the situation in Japan.
Bitcoin is a global asset that constantly fluctuates in the balance of power between the cost of money, monetary policy, and many other global macroeconomic factors.
