Bitcoin dropped below $86,000 last week. Traders lost $637 million in liquidations. Ether fell 7%. Everyone blamed holiday liquidity and year-end profit-taking.
I didn’t.
The Yen Carry Trade Nobody Wants to Talk About
Bank of Japan Governor Kazuo Ueda hinted at a December rate hike. Japan’s 2-year bond yield hit 1% on December 1st—highest since 2008.
Within hours, crypto collapsed.
The yen carry trade: $20 trillion globally. For three decades, traders borrowed yen at near-zero rates, chased higher yields elsewhere. Bitcoin became a target.
When Japan raises rates, the math breaks. Borrowers who locked in 1% funding now face repayment at 3%, plus a yen that appreciated 10%. Effective borrowing cost: 13%.
Bitcoin sits at the front of the liquidation stack.
August 2024: The Warning Nobody Heeded
I watched this play out in August 2024, when the Bank of Japan raised its policy rate to 0.25%—just 15 basis points.
Bitcoin plummeted 18%. Ethereum dropped 26%. The crypto market lost $600 billion in market cap. Japan’s stock market posted its worst single-day decline since 1987.
Fifteen basis points triggered all of that.
BIS research: crypto assets “respond sharply to changes in funding” and “absorb the first wave of volatility when liquidity dries up.” When macro funds cut positions fast, they sell Bitcoin first.
The Numbers Don’t Lie
Since early October, crypto lost $1.2 trillion—28% of its value gone.
Daily liquidations over $500 million are standard now. The Kobeissi Letter: “Excessive leverage has resulted in a hypersensitive market.”
$1.7 trillion in yen liquidity comes from non-bank financial institutions. They’re volatility-sensitive. Under stress, they withdraw fast. When they do, Bitcoin moves first and moves hardest.
What I’m Watching Now
Crypto isn’t insulated from traditional finance. It’s wired directly into it.
Overnight interest swaps: 80% odds of a December rate hike from Japan. Matt Maley, chief market strategist at Miller Tabak + Co: “would drain liquidity from the system.”
I’ve seen Bitcoin drop during dollar strength and yen appreciation in 2015, 2018, and 2022. Same pattern every time.
Critical support levels sit at $80,000 to $83,000. If those break, the next leg down accelerates.
Most traders ignore macroeconomic factors until liquidations pile up. I don’t.
When Tokyo moves, Bitcoin moves. That’s the $1.2 trillion lesson.
