Key Points
- Overleveraged traders participating in the JPY carry trade may have influenced Bitcoin’s recent performance.
- The Bank of Japan’s recent rate hike may have led to widespread selloffs in multiple markets, including cryptocurrencies.
The recent sell pressure on Bitcoin (BTC) seems to have subsided, with the markets showing signs of recovery in the last 24 hours. The crash wasn’t exclusive to Bitcoin or the crypto market, leading to speculations about the cause.
JPY Carry Trade and Bitcoin
Analysts suggest that a carry trade on the Japanese Yen could be a plausible explanation. In a carry trade, investors borrow a low-interest rate currency, exchange it for a high-interest rate currency, and invest in assets. The Bank of Japan’s shift from negative to positive rates and the recent 0.25% rate hike have increased the Yen’s value against the U.S. dollar. Consequently, overleveraged investors in the JPY carry trade had to liquidate their assets to repay loans.
It’s possible that some of these investors were directly exposed to Bitcoin, having secured low-interest loans to invest in high-yield assets, including Bitcoin. The widespread exposure might explain the heavy selloffs across different asset classes. The rate hike fallout might have also resulted in secondary exposure to crypto, with short sellers capitalizing on the downside potential. This led to a 31% drop in Bitcoin against the Japanese Yen since July 31st, with a slightly lesser 25% drop against the U.S. dollar.
Slow Recovery for Bitcoin?
The reasons behind the recent crash might also slow down Bitcoin’s recovery. However, the dip could present a potential buying opportunity. Despite this, Bitcoin and the larger crypto market might not be completely safe yet. With multiple bullish news in July and the possibility of negative news events in the coming weeks, there’s uncertainty about Bitcoin’s recovery speed before the Fear Of Missing Out (FOMO) effect kicks back in.
