Last night, I woke up to the news — Bitcoin has dropped again. This time, the decline was significant, briefly falling below $85,000. The most astonishing part is the alarming data on liquidations across the entire network in the past 24 hours: over 160,000 positions were liquidated, with total liquidation amounts reaching $553 million. Traders who used high leverage probably didn’t sleep well last night.

The root cause of this chain reaction points to the other side of the Pacific — the Bank of Japan. They officially announced today that they will raise the benchmark interest rate from 0.5% to 0.75%. It may seem like a mere 0.25 percentage point change, but this is the most aggressive rate hike Japan has implemented in decades.

Why can Japan’s policy adjustment cause such a big ripple in the crypto world? The logic is actually simple. For a long time, Japan’s ultra-low interest rate environment has created a classic global arbitrage model: numerous institutions and individuals borrow yen at nearly zero cost, then exchange it for dollars or other assets, investing in high-yield markets like US stocks and cryptocurrencies. This mechanism has supported a significant portion of liquidity in the crypto market.

Now that the Bank of Japan tightens its policy, the cost of borrowing yen immediately rises. Participants holding highly leveraged positions face two bad options: either bear higher financing costs or quickly cut their positions. Many investors chose the latter, selling off Bitcoin en masse to pay off yen-denominated debts. This concentrated selling became a direct driver of the downward pressure on prices.

Interestingly, after the rate hike news was officially announced, Bitcoin’s price instead showed a strange stability — hovering around $87,000. Some analysts believe this indicates the market had already priced in this negative news in advance, but others worry that this strange calm might be the calm before the storm.

This volatility has taught the entire market a lesson: the cryptocurrency market is not isolated. Every policy adjustment by global central banks can directly impact the crypto space through cross-border capital flows. The profits built on low-cost financing often collapse unexpectedly fast. In such a market environment, risk management becomes especially crucial.