The yen arbitrage wave is flowing in the opposite direction, and Bitcoin is caught in this inconvenient moment's whirlpool.

Over the past twenty years, Wall Street has been playing a simple yet powerful game: borrowing money in Japan at near-zero interest rates and then investing in the US market to earn a 4-5% spread. This mechanism has operated so smoothly that tens of trillions of dollars flow through this cycle daily. But now, the rules of this game are changing.

Why the seemingly harmless “lending game” suddenly collapses

When the Bank of Japan decided to raise interest rates to stabilize the yen, and the Federal Reserve simultaneously began to cut rates significantly, this arbitrage space was instantly squeezed. “Free money” is no longer free. For institutions betting on this interest rate differential with leverage, this uncomfortable moment means they must immediately cut losses: sell US assets, exchange dollars for yen, and repay Japanese loans.

This is not a gentle adjustment. It’s a large-scale liquidity drain—pulling funds out of the US market and flowing back to Tokyo. And the cryptocurrency market is at the forefront.

Why Bitcoin is the first to feel the impact

Bitcoin often serves as a “barometer” of risk appetite. When arbitrage positions are forced to close, high-risk, high-leverage assets are the first to be sold off. Data shows that Bitcoin has recently been oscillating between Fibonacci retracement levels 0.618 and 0.786 (weekly chart), which precisely reflects market panic selling.

The Fed’s “money printing mode” has restarted

More notably, the Federal Reserve has cut rates three times in 2024 and announced the end of “quantitative tightening” (QT). A new $40 billion bond purchase plan has been launched—this indicates that the “stimulus mode” is quietly returning. This policy shift should support risk assets, but in the short term, it is overshadowed by the impact of forced liquidation.

Current price signals and historical reference

As of the latest data, Bitcoin is priced at $91,550, with a 24-hour increase of 0.97%. Historically, Bitcoin has fallen more than 50% multiple times but has never broken below the mining cost line (currently around $71,000)—a technical “hard support.”

Practical advice for investors

For holders, the current volatility is within normal ranges. The forced liquidation causes short-term shocks, but the Fed’s easing policy will ultimately create upward pressure—just a matter of time. If prices continue approaching $71,000, historical experience suggests this could be a relatively safe accumulation zone.

In short, Bitcoin is being pulled by two forces: one is rapid deleveraging, and the other is slow but steady liquidity injection. Who will ultimately prevail depends on when these two forces synchronize.