The Bank of Japan (BOJ) announced a historic 25 basis point (bp) hike, raising its benchmark lending rate to 0.5%, the highest since 2008.

Though widely anticipated, this move has traders and investors on the edge of their seats, bracing for its impact on Bitcoin and crypto markets in general.  

BOJ’s Rate Hike and Global Financial Impacts

The BOJ’s decision marks the third rate hike since early 2024. This signals a shift in Japan’s monetary policy amidst persistently high inflation, projected to remain between 2.6% and 2.8% in 2025.

Accordingly, Japan’s economic growth forecasts have been revised downward, adding complexity to an already volatile financial environment. A stronger Japanese currency resulting from the rate hike could disrupt the yen carry trade.

In the carry trade strategy, investors borrow yen at low interest rates to invest in higher-yielding assets elsewhere. This unwinding could trigger a chain reaction in global liquidity, influencing risk assets, including cryptocurrencies, equities, and commodities.

Following the announcement, Bitcoin dropped 3% but is already attempting a recovery. Ethereum, Solana, Dogecoin, and Cardano also experienced corrections. The sentiment shift is likely tied to President Donald Trump’s executive order for a digital assets stockpile in the US.

The immediate correction suggests Bitcoin’s sensitivity to macroeconomic changes, with investors reducing their exposure to high-risk assets. Nevertheless, some analysts anticipate further downside for Bitcoin once the hype around systemic changes in the US fades.

“Bitcoin could experience a sharp 50% drop,” crypto analyst Financelancelot speculated.

The analyst draws parallels to the 1929 stock market crash, which highlighted the dangers of speculative bubbles. They highlighted striking similarities in technical indicators like the Relative Strength Index (RSI), which currently mirrors those from 1929. With this, the analyst predicts a potential flash crash toward the end of January 2025.

According to Financelancelot, events like the expiration of VIX options and geopolitical tensions could amplify volatility. On the other hand, some voices in the crypto space, like @0xKiryoko, remain cautiously optimistic.

“…global markets are going to feel it. Crypto included. Solana ETFs and a pro-crypto president won’t matter in the short term if liquidity dries up…but the bullrun is not over. NFA, opportunities like this don’t come clean and simple,” she noted.

Meanwhile, the BOJ’s rate hike is not the only factor weighing on the crypto market. Global uncertainties, including US trade policies and geopolitical developments, are adding layers of complexity. Cypress Demanincor, another market analyst, pointed out that the Trump administration’s economic strategies are creating additional volatility.

“Everyone’s attention was on the Trump inauguration for the next major market move when the bigger force to consider is the BOJ interest rate hike,” he said.

As the BOJ’s rate hike takes effect, traders and investors should monitor its implications. Historically, such moves, where there is the reverse carry trade, have led to short-term sell-offs followed by periods of recovery.

“Same thing that happened July 31st, 2024. Short-lived sell pressure and discounted prices that last a few days depending on the size of the unwind. Last time it was about a week’s worth of sell pressure,” Demanincor added.

The current environment reflects the importance of caution and strategic planning for cryptocurrency investors. While the market may face imminent volatility, this could present opportunities to accumulate assets at discounted prices.

“I feel sorry for everyone that got shaken out of the markets over last couple of days because of BOJ concerns, and lack of Strategic Bitcoin Reserve news. You have to have a longer time frame in your mind if you want to be a successful investor. Patience will reward you. Remember, 10 days give us the most gains in the Bitcoin cycle. Good luck timing that,” one crypto investor remarked.