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Bitcoin News Update: Crypto Liquidity Squeezed as Yen Carry Trade Unravels

Bitcoin News Update: Crypto Liquidity Squeezed as Yen Carry Trade Unravels

Bitget-RWA2025/12/01 22:38
By: Bitget-RWA
- Japan's 10-year bond yield surge to 1.84% triggered a $640M crypto liquidation wave as leveraged traders faced margin calls. - Unwinding yen carry trade reversed capital flows from crypto, causing Bitcoin/Ethereum to drop over 5% amid rising JGB yields. - BOJ's hawkish signals and global liquidity tightening created toxic conditions for leveraged crypto positions, accelerating deleveraging. - Analysts warn of prolonged volatility as rate hike pace and liquidity constraints remain key risks for crypto mar

Japanese Bond Market Turmoil Impacts Cryptocurrency Sector

The recent turbulence in Japan's government bond market has reverberated through the cryptocurrency landscape. Both Bitcoin and Ethereum have suffered notable declines as global liquidity tightens. The yield on Japan’s 10-year government bond soared to 1.84%, a level not seen since April 2008, sparking widespread liquidations in digital asset markets.

Within a single day, over $640 million in crypto positions were liquidated, as traders using leverage were forced to meet margin calls. This episode highlights the increasing links between traditional financial indicators and the digital asset space, which remains highly reactive to changes in global monetary conditions.

Yen Carry Trade Faces Unwinding

The longstanding yen carry trade—where investors borrow yen at low interest rates to invest in higher-yielding assets—is now under pressure. As Japanese bond yields rise, capital is flowing out of riskier investments like cryptocurrencies. Data scientist ViPiN commented on X that the era of the yen carry trade, which supported global risk-taking for decades, may be coming to an end as higher yields in Japan prompt a structural shift. This reversal has fueled increased volatility, with the overall crypto market capitalization dropping by 5%, and both Bitcoin and Ethereum experiencing similar losses.

Bank of Japan’s Policy Shift Raises Concerns

The Bank of Japan’s recent hawkish tone has heightened market unease. Governor Ueda’s hints at a possible interest rate increase this month have revived fears of another yen carry trade unwind, reminiscent of the market turmoil seen in August 2024. Analysts warn that a move toward tighter monetary policy in Japan could diminish the attractiveness of leveraged crypto trades, which have long benefited from inexpensive yen financing. Daniel Tenengauzer of InTouch Capital Markets noted that if the BOJ adopts a more aggressive stance, investors will adjust their strategies across various markets, affecting risk assets globally.

Global Factors Add to Crypto Market Pressure

Additional headwinds are coming from broader financial markets. With a quarter-point rate cut by the Federal Reserve already anticipated, many traders are unwinding their long positions, further pressuring crypto prices. This has led to sharp declines in crypto-related stocks, particularly among digital asset treasuries, as Bitcoin dropped to $84,000. The combination of the Bank of Japan’s tightening signals and shrinking global liquidity has created a challenging environment for leveraged crypto positions, where rapid deleveraging can intensify market downturns.

Outlook: Persistent Risks Ahead

Looking forward, the ongoing reversal of the yen carry trade is likely to remain a drag on crypto markets. Although Japan’s plans to boost defense spending to 2% of GDP and potential missile exports to the Philippines, as reported by SCMP, indicate a strategic shift, these factors are unlikely to counteract the prevailing macroeconomic challenges. The primary concern for digital assets is the speed of interest rate increases and the ongoing constraints on liquidity. As one analyst observed, this is not just a technical adjustment but a fundamental revaluation of risk, suggesting the potential for extended market volatility.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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Bitget-RWA2025/12/02 04:08

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