It looks like Japan's rate hikes are not stopping anytime soon.

Polymarket now shows an 81% probability of a 25 basis point hike in December, and at the same time, Japan's two-year government bond yield has broken above 1%—the first time since 2008. The five-year government bond yield has also hit a new high, and the yen has risen by 1% against the trend. Putting these signals together, it’s likely that Japan’s decades-long ultra-loose monetary policy is coming to an end.

The impact on the crypto market shouldn’t be underestimated. The amount of capital engaged in yen carry trades is estimated to be in the $3 to $5 trillion range—in other words, a significant portion of the money currently flowing into risk assets is actually low-interest capital borrowed from the Bank of Japan. Once rate hikes narrow the interest rate differential, this money will likely exit risk assets quickly. The logic behind Jump clearing out its ETH positions previously was exactly this. Mainstream tokens have good liquidity and can be cashed out quickly, making them the first choice to cover margin pressures, so funds will exit these assets first. Think back to the March 12, 2020 crash—the essence was a sudden cash crunch, and the crypto market took the hardest hit.

That said, things with real value won’t be completely wiped out just because of liquidity stress. Funds are flowing out passively now, but they’ll return sooner or later—just like during the market maker liquidity crisis on October 11, 2022, when nearly $20 billion worth of USDT and USDC were issued within a month.

Although prices haven’t recovered yet—and the situation looks even weaker due to spot ETF outflows and diminished expectations for rate cuts—these are all temporary disturbances. In the long run, the global trend of monetary easing won’t change, and the narrative of Bitcoin as “on-chain gold” is still intact. Capital will eventually flow back in, so spot holders really don’t need to worry too much about short-term volatility.