Recently, the Bitcoin market is going through a significant stress test, and the pressure is coming from across the Pacific—the Bank of Japan might be about to raise interest rates.

Here are the numbers: BTC has dropped from its peak of $104,000 all the way down to hovering around $86,000–$88,000, a decline of over 18%. And that's not even the worst of it. Looking back to July 2024, when Japan raised rates for the first time, Bitcoin crashed 23% in a single day, and the entire crypto market was hit hard.

Why does a rate hike in Japan make Bitcoin shake?

Simply put, it's because the flow of money has changed. Once Japan raises rates, capital is bound to flow back, since who doesn't want more stable returns? Naturally, investors have less appetite for high-risk assets. What's even worse is the wave of unwinding yen carry trades—in recent years, plenty of people have borrowed low-interest yen to bet on Bitcoin. Now that rates are rising, these leveraged trades have to be closed quickly to pay back the loans, causing a sudden liquidity crunch.

On a larger scale, as a major global economy, Japan's monetary policy shifts can set off a chain reaction. U.S. Treasury yields and the dollar's performance are also affected, tightening liquidity across the entire market. Although Bitcoin claims to be "digital gold," to be honest, in this kind of liquidity squeeze, its high volatility makes people want to get out first.

Now the market has entered the countdown. The rate decision meeting on December 19 could be another key turning point. For those holding coins, be mentally prepared—a new round of volatility might be just around the corner.