On December 19, the Bank of Japan is holding a meeting, and the market expects a direct rate hike of 25 basis points, raising the interest rate from 0.5% to 0.75%. On the surface, this looks like a domestic monetary policy adjustment in Japan, but the impact on the crypto market could be bigger than imagined.

Why do I say this? For the past decade or so, global institutions and big players have been running a classic play: borrowing yen from Japan at extremely low cost, converting it to US dollars, and investing worldwide—US stocks, gold, and cryptocurrencies are all targets. The scale of this carry trade is estimated at over a trillion dollars, serving as an invisible force supporting the prices of risk assets.

Now, the rules are changing. A rate hike means borrowing costs go up, and the almost zero-cost arbitrage space shrinks. The first reaction of this smart money is usually to unwind leverage and close positions. The assets they sell first are often the most liquid—Bitcoin is at the top of that list.

My assessment is straightforward: the market will definitely be affected in the short term. The BOJ decision coincides with a sensitive turning point for the Fed’s policy, becoming the biggest source of uncertainty at year-end. Once the rate hike is implemented, the pressure to unwind positions will be released, liquidity will tighten further, and volatility is very likely to spike. At times like this, don’t get carried away and add leverage—it’s easy to get liquidated in a chain reaction.

So what should you do now? Here are a few practical ideas:

First, reduce leverage and protect your principal. Don’t fight the market when liquidity is tight. Lower your contract leverage as much as possible, or even switch some funds to stablecoins and wait it out.

Keep a close eye on December 19 as a key date, and monitor market sentiment indicators. When the fear index reaches “extreme fear,” it often means the selling pressure is nearly over.

Be ready with dry powder. If there’s a sharp drop due to rate hike expectations, for those who believe in the long-term trend, it could actually be a chance to accumulate spot positions in batches.

It’s only when the tide goes out that you see who’s really swimming naked. This is the time to test your patience and strategy.