Some analyses of the cryptocurrency markets suggest that the significant contraction in carry trades conducted in Japanese Yen could create a positive environment for Bitcoin in the medium term.
According to the analysis, while the Bank of Japan's (BOJ) monetary policy normalization process may put pressure on leveraged transactions in the short term, it also provides markets with a clear framework by reducing uncertainty about global financing conditions.
Negentropic, a co-founder of Glassnode, said the real fear in the markets is uncertainty rather than interest rate hikes. According to Negentropic, the BOJ's policy normalization increases predictability for investors, and this, despite temporary pressures, stands out as a factor that could support risk appetite in the long term. The fact that yen carry trades have already been largely reduced is also considered an important part of this process.
The analysis notes that increased volatility creates opportunities for investors, while Bitcoin typically strengthens after a relaxation of policy pressure, and remains more cautious immediately before such a period. It states that with reduced uncertainty and stronger market signals, the probability of an “asymmetric upside risk” for Bitcoin is increasing.
Negentropic also suggested that the BOJ's communication language regarding potential interest rate hikes is critical, and that officials might adopt a data-driven approach to avoid further pushing up new and bond yields. According to the analysis, a potential rate hike is already largely priced into swap markets. Therefore, the key determining factor will be the bank's guidance and clarity on the future.
*This is not investment advice.
