Japan's rate hike this time is highly likely to cause significant shocks to the virtual currency market, but there are certain buffering factors in the medium to long term. The specific impacts are as follows:

1. Short-term trigger for a sharp correction in virtual currencies: The three rate hikes by Japan starting from March 2024 have all caused Bitcoin to retrace over 20%, and after the January 2025 rate hike, it even fell more than 30%. This rate hike is likely to continue this trend. Currently, Bitcoin has fallen to around $85,000 due to rate hike expectations. If the rate hike is implemented, based on historical patterns, it may retrace another 20%-25% within 3-6 weeks, and could even break below the key support level of $70,000. Other virtual currencies like Ethereum will also face pressure simultaneously.

2. The core transmission logic is the unwinding of yen carry trades: For a long time, the yen has been a cheap financing currency globally. Investors often borrow yen to exchange for other currencies to invest in virtual currencies and other risk assets. Rate hikes will increase the borrowing costs and affect the exchange rate of the yen. Carry traders, to avoid losses, will sell large amounts of virtual currencies to buy back yen for debt repayment. Since the virtual currency market is small and highly leveraged, this concentrated selling can trigger liquidity tightening, creating a negative feedback loop of selling and deleveraging, further intensifying market volatility.

3. Buffer factors in the medium to long term may help stabilize the market: On one hand, the market has already fully priced in the rate hike, and some of the correction pressure has been released in advance. If the rate hike is within expectations and the central bank’s stance remains moderate, the market may gradually stabilize after some turbulence. On the other hand, Japan’s domestic Web3 regulation and tax system are continuously improving. The appreciation of the yen also reduces the cost for domestic investors to hold dollar-denominated virtual currencies. Increased participation of compliant funds may supplement market liquidity.

4. Future trends are heavily influenced by subsequent guidance after the rate hike: If the rate hike signals a hawkish stance of continued increases into 2026, combined with year-end institutional settlements and weak liquidity, Bitcoin’s decline could break historical records, reaching 30%-35%. However, if the central bank adopts a neutral stance or even hints at a pause in future rate hikes, the market may experience a “sell-off exhaustion” rebound, with Bitcoin stabilizing after testing key support levels. #btc