Leverage in Japan is on the horizon. Why might Bitcoin not decrease this time? Three key signals indicating a change in market logic

"The Bank of Japan raises interest rates once, and Bitcoin should crash!" As the Monetary Policy Committee meeting of the Bank of Japan in Tokyo approaches, this prophecy is increasingly repeated in the crypto community. Yesterday, Bitcoin retreated from $90,000 to $85,616, with a daily decline of 5%, fueling this panic.
However, looking at the core, this market scenario may be under rewrite.
The burden of history: three rate hikes, three bloodbaths
The psychological shock to the market from Japan's rate hikes is not without reason. After three rate increases in March, July, and January 2025, Bitcoin experienced sharp declines of over 20%. The most severe was in July 2024, when Bitcoin dropped from $65,000 to $50,000, with the crypto market value evaporating by $600 billion.
Behind this is the typical "yen swap" logic: investors borrow yen at no cost, convert it into dollars to invest in high-yield assets. Once the rate hike raises the cost of yen financing and causes the exchange rate to rise, these leveraged positions must close urgently, repaying yen debts. Since Bitcoin is a liquid, high-risk asset, it becomes the first "withdrawal machine."
Three unusual signals point to a different scenario
Nevertheless, three interesting changes are emerging in the market:
Signal 1: Short positions "gave up" early
The reason for the market collapse in July 2024 was that most funds did not expect the rate hike; at that time, speculative funds were still heavily selling yen. Now, Polymarket data shows that the probability of a 25 basis point rate increase has reached 98%, and yen speculative positions have shifted from net short to net long. This means that the yen's rise after the rate hike is limited, and the panic-driven closing of positions is less likely.
Signal 2: The bond market "races ahead"
Japanese 10-year bond yields have risen from 1.1% at the start of the year to nearly 2%, reaching the highest level in 18 years. The market is achieving a "self-fulfilling rate hike" through its actions, and the central bank's decision may be seen as a confirmation of the current situation. When policy is fully priced into the market, its impact will be less severe.
Signal 3: The US and Japan are playing a "policy balancing act"
While Japan may raise interest rates, the Federal Reserve has cut rates by 25 basis points. This overlap in policies, known as "policy balancing," prevents simultaneous tightening of global liquidity and provides a cushion for risk assets.
Bitcoin identity crisis: from safe haven to risk asset
A deeper question is: why does the rate hike in Japan affect Bitcoin so much?
Data indicates that Bitcoin's correlation with the Nasdaq 100 index reached 0.8 in early 2025, the highest since 2022. Previously, this value ranged between -0.2 and 0.2. This suggests that Bitcoin is no longer just a "digital gold" independent of the traditional financial system but has become part of a deep risk asset portfolio on Wall Street.
The launch of the US spot Bitcoin ETF accelerated this shift. Pension funds, hedge funds, and institutional investors include Bitcoin in their "risk budgets." When global liquidity tightens, they do not differentiate between Bitcoin and tech stocks but reduce their positions uniformly. Bitcoin's relatively deep market and liquidity resilience make it the first to be affected by leverage reduction.
Smart money flows: who is buying during the dip?
Interestingly, on-chain data reveals another scene. Despite the price correction, large addresses holding more than 1,000 Bitcoin continue to increase their holdings, while exchange reserves decline, and more tokens are transferred to cold wallets for long-term holding.
This indicates that assets are shifting from short-term traders to long-term investors, improving market structure. Additionally, expectations of a rising yen reduce the cost of entering Japanese domestic funds, and with the improving Web3 regulatory framework in Japan and tax system reforms, regulatory benefits may emerge after the liquidity effect diminishes.
Options market sentiment indicators also show no signs of extreme pessimism. Despite increased demand for put options, the 25-delta risk reversal index has not shown panic readings, indicating that professional investors are hedging risks rather than engaging in mass panic.
Summary: history does not simply repeat, but repeats the same tone
With the implementation of the Bank of Japan's decision, focus will shift to a new balance — between liquidity flows from the US rate cuts and adjustments in leverage strategies in Japan. The outcome of this game will determine Bitcoin's short-term trajectory.
However, the era of relying on breaking news and trading based on headlines is definitely over. The market always rewards those who can distinguish signals from noise and punishes emotionally driven traders.
How do you see the impact of Japan's rate hike on the digital market in the long term? Share your insights in the comments!
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