On December 18, the Bank of Japan officially started raising interest rates, and this is just the beginning. Many people might think this has nothing to do with the crypto world, but in reality, this could be the most powerful blow to the crypto market this year.

Simply put, one of the crypto market’s secret weapons for liquidity over the past decade has been the yen carry trade. What does that mean? In short: borrow yen at nearly zero cost, exchange it for US dollars, and then go on a buying spree for assets like Bitcoin. This tactic has supported massive capital inflows into the market. Now that the Bank of Japan is tightening the tap and borrowing costs are soaring, how can this game continue?

Here’s what might happen next: funds making money through yen carry trades will be forced to sell their crypto assets, convert them back to dollars, and then buy yen to repay their debts. This is what’s called a “wave of unwinding.”

What will this move cause?

**Liquidity will be drained instantly.** Trillions of arbitrage funds pulling out means the market loses its buying support in a flash—like pulling the foundation out from under a building.

**Leverage players will suffer.** With both exchange rate fluctuations and falling crypto prices, highly leveraged positions could trigger cascading liquidations like dominoes.

**Panic will spread.** Bitcoin, as a core risk asset, will be hit first. Historically, every round of liquidity tightening has followed this script.

But then again, a crisis isn’t all bad. When panic dominates the market, it’s often a good time to reposition. For example, Bitcoin’s “supra-sovereign asset” narrative might get renewed attention when the traditional financial system is in turmoil. Also, this kind of shakeout can weed out junk projects propped up by leverage and bubbles, with capital eventually flowing to truly valuable assets.

So here’s the question: as the world’s cheapest source of capital dries up, will you stay on the sidelines or look for opportunities in the chaos? The market never lacks volatility; what it lacks are people who can see the logic behind the moves.