When Japan changes its monetary policy, Bitcoin loses billions within hours – the butterfly effect from Tokyo

Bitcoin in Crisis of Identity: The Path of Digital Gold That Became a Tech Stock

Currently, Bitcoin is trading at $91.77K with a daily increase of +1.26%, and its market capitalization stands at $1833.01B. However, this calm session conceals deep structural tensions in the market. The story from December 15, 2024, is a perfect example – within just 48 hours before the Bank of Japan’s announcement, BTC dropped from $90,000 to $85,616, registering a one-day decline of over 5%. At first glance, there was nothing extraordinary in the cryptocurrency market: on-chain data did not show any exceptional selling pressure, and no catastrophic news occurred. The explanation for this phenomenon lies not in the digital currency world but in the Tokyo headquarters of the central institution.

Changing the Rules of the Game: From Alternative Asset to Wall Street Portfolio Component

By 2024, Bitcoin operated in a practically isolated ecosystem. Native crypto players, advanced retail investors, and some family offices formed the main buyer base. A breakthrough move was the SEC’s approval of spot Bitcoin ETFs in January 2024. BlackRock, Fidelity, and other asset management giants received the green light for mass institutionalization of BTC.

Capital indeed flowed in – but along with it came a fundamental transformation. Bitcoin shifted from an independent store of value to a portfolio component alongside US stocks, bonds, and gold. Two years ago, the 30-day correlation of BTC with the Nasdaq 100 hovered between -0.2 and 0.2. By early 2025, this correlation reached 0.80 – the highest level since 2022. This is not coincidence; it is a change in the market’s DNA.

When pension fund and hedge fund managers manage their risk budgets, they do not think in terms of “selling Bitcoin” or “selling Nvidia.” They think in terms of exposure: reducing risk proportionally across all fronts. During periods of risk aversion, correlation relationships tighten – March 2020 (pandemic crash), 2022 (aggressive Fed hikes), early 2025 (fears of tariffs). Each time, the link between BTC and the US stock market intensifies.

Carry Trade Logic: How Tokyo Influences Portfolios from New York to Singapore

The yen carry trade strategy has been around for decades but has never reached such scale. The mechanism is elegantly simple: interest rates in Japan remained near zero or even negative for years. Borrowing yen practically cost nothing.

Global hedge funds, asset management firms, and trading desks mass-exploited this disparity. Yen was borrowed, converted into dollars, and invested in higher-yield assets – US bonds, stocks, cryptocurrencies. As long as the returns on these investments exceeded financing costs, the position was profitable. Cautious estimates suggest hundreds of billions of dollars involved directly; considering derivatives and multiplier effects, some analysts suggest figures reaching several trillion.

At the same time, Japan holds a bargaining chip: it is the largest foreign holder of US Treasury securities, owning $1.18 trillion of US debt. This means that any change in capital flows from Japan directly resonates through the global bond market and the valuation of all risky assets.

The Butterfly Effect from Tokyo: How 25 Basis Points Spread Worldwide

On December 19, the Bank of Japan announced an interest rate hike from 0.5% to 0.75% – the highest in nearly 30 years. Probabilistic market forecasts placed the likelihood of this decision at 98%. The question investors asked: how can a rate hike on the other side of the world cause Bitcoin to fall 5% within 48 hours?

The answer lies in a cascade of events. First, when rates in Japan rise, the cost of borrowing yen increases, and arbitrage space narrows. Second, expectations of hikes cause yen appreciation. Institutions that originally borrowed yen, converted it into dollars, and invested in assets now must sell those assets, exchange back into yen, and repay debts. The more the yen strengthens, the larger the amount of assets that must be liquidated.

These forced sales are not selective. Institutions sell what is most liquid and easiest to convert. Bitcoin, traded 24/7 and with shallower market depth than traditional stocks, usually becomes the first target.

History confirms this dynamic. On July 31, 2024, when the BOJ announced its last rate hike to 0.25%, the yen appreciated from 160 to below 140 against the dollar. Bitcoin dropped from $65,000 to $50,000 in seven days – a decline of about 23%. The entire crypto sector lost $60 billion in market cap. On-chain analysts confirmed that after three recent BOJ rate hikes, Bitcoin experienced corrections exceeding 20 percent.

Therefore, what was observed on December 15 – three days before the official decision – was actually market anticipation. Capital was already withdrawing. US Bitcoin ETFs saw a net outflow of $357 million – the largest one-day exodus in two weeks. Within 24 hours, long positions worth over $600 million were liquidated. This was not retail panic but a domino effect of arbitrage position closures.

Facing Reality: Bitcoin Lost Its Insurance Status

If Bitcoin was meant to be digital gold – a tool to hedge against inflation and fiat currency devaluation – 2025 challenged that narrative. Gold this year rose over 60% (best year since 1979), while Bitcoin from its peak fell over 30%. Both assets, considered safe havens during macroeconomic turbulence, followed diametrically different paths.

Long-term, the five-year cumulative annual return of Bitcoin still surpasses the S&P 500 and Nasdaq. However, its short-term valuation has undergone a radical transformation. Bitcoin is now a high Beta asset with high volatility – a component of institutional portfolios subject to the same risk management rules as tech stocks.

This explains why 25 basis points from Tokyo can cause fluctuations of several thousand dollars within 48 hours. Not because Japanese investors are selling Bitcoin, but because when global liquidity shrinks, institutions reduce risk exposure according to a uniform logic – and Bitcoin, as the most volatile and easiest to liquidate link, is the first to fall.

Coming Weeks: Scenarios and Potential Triggers

Once markets have priced in the rate hike as a certainty, the yield on 10-year Japanese government bonds rose to 1.95% – the highest in 18 years. The bond market has already incorporated expectations of tightening. The question is: is there still room for a shock?

History suggests yes – but the scale will depend on the tone of communication. If BOJ President Kazuo Ueda says the bank “will cautiously assess the situation based on data,” the market may breathe a sigh of relief. If he signals “inflationary pressures persist, further tightening cannot be ruled out,” it could mark the start of a new wave of sell-offs.

However, some analysts point to factors that may limit the scale of potential declines. First, speculative yen positions have shifted from net short to net long – the surprise this time will be less dramatic. Second, Japanese bond yields have been rising for half a year, from 1.1% at the start of the year to nearly 2% – the market has “already raised rates itself.” Third, the Fed has just cut its rates, and the overall dollar liquidity trend remains mild, which could partially offset the pressure on the yen.

Historically, Bitcoin has bottomed out within one to two weeks after BOJ decisions and then entered consolidation or recovery phases. If this pattern persists, late December and early January could be periods of high volatility – but also a potential opportunity for accumulation after the “unjustified” sell-off.

The Price of Institutionalization: A New Reality for Bitcoin Holders

The causal chain is transparent: rate hikes by the Bank of Japan → unwinding of yen carry positions → global liquidity tightening → institutions reducing risk exposure → Bitcoin as a high Beta asset falls first.

Bitcoin did nothing “bad” in this chain. It simply found itself at the end of macroeconomic liquidity transmission, beyond control. This may be unappealing, but it is the new normal in the era of spot ETFs.

Before 2024, Bitcoin’s dynamics were driven by endemic factors for cryptocurrencies: halving cycles, on-chain data, exchange news, regulatory decisions. Its correlation with US stocks and bonds was minimal. After 2025, Wall Street entered the scene. Bitcoin was integrated into risk management systems alongside bonds and stocks. The ownership structure changed, valuation logic shifted. Bitcoin’s market cap grew from hundreds of billions to $1.83 trillion – but a side effect emerged: it lost resilience to macroeconomic shocks.

If you believe in the narrative of digital gold – a safe haven in times of turmoil – 2025 may disappoint. At this stage, the market does not price it as a hedging asset.

This may be a temporary disruption. Institutionalization might still be in its early phase, and once allocation proportions stabilize, Bitcoin could regain autonomy. The next halving cycle might again prove the strength of endogenous factors. But until then, if you own Bitcoin, you must accept one thing: you are simultaneously exposed to global liquidity. What happens in the conference room in Tokyo could have a bigger impact on your account next week than any on-chain indicator.

This is the price paid for entry into Wall Street.