From the yen interest rate hike to the closure of mines, why is Bitcoin still falling?

The week following the interest rate cut has not started well.

Bitcoin has fallen back to around $85,600, and Ethereum has lost the $3,000 mark; cryptocurrency-related stocks are also under pressure, with Strategy and Circle both down nearly 7% in a single day, Coinbase down over 5%, and mining companies CLSK, HUT, and WULF seeing declines of more than 10%.

From the expectations of interest rate hikes by the Bank of Japan to the uncertainty surrounding the Federal Reserve's future rate cuts, and the systemic de-risking by long-term holders, miners, and market makers, the reasons for this round of decline lean more towards macroeconomic factors.

Yen Rate Hike: The Underestimated First "Domino"

The Bank of Japan's interest rate hike is the biggest factor in this decline, which may be the last major event in the financial sector this year.

Historical data shows that when Japan raises interest rates, Bitcoin holders do not fare well.

After the last three interest rate hikes by the Bank of Japan, Bitcoin fell by 20% to 30% within 4 to 6 weeks. As analyst Quinten has detailed: Bitcoin dropped about 27% after the yen rate hike in March 2024, 30% after the hike in July, and again 30% after the hike in January 2025.

This time marks the first interest rate hike in Japan since January 2025, with rates potentially reaching a 30-year high. Current market predictions show a 97% probability of a 25 basis point hike, which is almost a certainty; the meeting that day may just be a formality, as the market has already reacted with a downturn.

Analyst Hanzo stated that the cryptocurrency market's disregard for the Bank of Japan's movements is a significant oversight. He pointed out that Japan, as the largest foreign holder of U.S. Treasury bonds (holding over $1.1 trillion), could influence global dollar supply, Treasury yields, and risk assets like Bitcoin.

Several macro-focused Twitter users have also noted that the yen is the largest player in the foreign exchange market besides the dollar, and its impact on capital markets may be greater than that of the euro. The nearly thirty-year bull market in U.S. stocks has a lot to do with yen arbitrage. For years, investors have borrowed yen at low interest rates to invest in U.S. stocks, bonds, or purchase high-yield assets like cryptocurrencies. When Japanese interest rates rise, these positions may be quickly liquidated, leading to forced liquidations and deleveraging across all markets.

Moreover, the current market backdrop is that most major central banks are cutting rates while the Bank of Japan is raising them. This contrast will trigger the unwinding of arbitrage trades, meaning that such rate hikes could lead to renewed turbulence in the cryptocurrency market.

More importantly, the rate hike itself may not be the key risk; rather, it is the signals released by the Bank of Japan regarding its policy guidance for 2026. The Bank of Japan has confirmed that starting in January 2026, it will sell approximately $550 billion worth of ETF holdings. If the Bank of Japan raises rates again or multiple times in 2026, it could lead to more rate hikes and accelerated bond sell-offs, further unwinding yen arbitrage trades, triggering a sell-off of risk assets and yen repatriation, which could have a lasting impact on the stock market and cryptocurrencies.

However, if fortunate, if the Bank of Japan pauses further rate hikes in the upcoming meetings after this one, the market's flash crash may end and a rebound could follow.

Uncertainty in Future U.S. Rate Cuts

Of course, no decline is due to a single factor or variable. The timing of the Bank of Japan's rate hike and Bitcoin's crash coincides with several other factors: leverage reaching peak levels; tightening dollar liquidity; extreme positions; and the impact of global liquidity and leverage, among others.

Let’s turn our attention back to the U.S.

In the first week following the rate cut, Bitcoin began to weaken. This is because the market's focus has shifted to "how many more times can we cut rates in 2026, and will the pace be forced to slow down?" The two key data points to be released this week—the U.S. non-farm payroll report and CPI data—are core variables in re-pricing these expectations.

With the U.S. government ending its long-standing shutdown, the Bureau of Labor Statistics (BLS) will release employment data for October and November this week, with the most anticipated being the non-farm payroll report to be released tonight at 21:30. Current market expectations for employment are not optimistic.

On the surface, this is a typical "bullish for rate cuts" data structure, but the problem lies in: if employment cools too quickly, will the Federal Reserve worry about an economic slowdown and choose to adjust its policy pace more cautiously? If employment data shows a "cliff-like drop" or structural deterioration, the Federal Reserve may choose to wait and see rather than accelerate easing.

Next, consider the CPI data. Compared to employment data, the CPI data to be released on December 18 has been repeatedly discussed in the market: will it give the Federal Reserve a reason to "speed up balance sheet reduction" to counter the Bank of Japan's tightening?

If inflation data rebounds or becomes stickier, even if the Federal Reserve maintains its rate cut stance, it may still accelerate balance sheet reduction to withdraw liquidity, thus achieving a balance between "nominal easing" and "actual liquidity tightening."

The next truly certain rate cut will not come until at least the January 2026 meeting, and that timeframe remains distant. Currently, Polymarket predicts a 78% probability that rates will remain unchanged on January 28, with only a 22% probability for a rate cut, indicating significant uncertainty regarding rate cut expectations.

Additionally, this week, the Bank of England and the European Central Bank will also hold meetings to discuss their respective monetary policy stances. With Japan having already shifted, the U.S. hesitating, and Europe and the UK in wait-and-see mode, global monetary policy is in a highly differentiated phase, making it difficult to form a unified front.

For Bitcoin, this "non-unified liquidity environment" is often more lethal than clear tightening.

Mining Operations Closing, Old Money Continues to Exit

Another common analytical viewpoint is that long-term holders are still continuously selling, and the pace of reduction has accelerated this week.

First, there is the selling by ETF institutions, with Bitcoin spot ETFs seeing a net outflow of about $350 million (approximately 4,000 BTC) in a single day, primarily from Fidelity's FBTC and Grayscale's GBTC/ETHE; Ethereum ETFs have seen a cumulative net outflow of about $65 million (approximately 21,000 ETH).

Interestingly, Bitcoin's performance during U.S. trading hours has been relatively weak. Data from Bespoke Investment indicates: "Since the launch of BlackRock's IBIT Bitcoin ETF, holding it after market close has yielded a return of 222%, but holding it only during market hours has resulted in a loss of 40.5%."

Following this, more direct selling signals have appeared on-chain.

On December 15, net inflows to Bitcoin exchanges reached 3,764 BTC (approximately $340 million), marking a peak. Of this, Binance alone accounted for a net inflow of 2,285 BTC, approximately 8 times larger than the previous phase, clearly indicating that large holders are concentrating their deposits in preparation for selling.

Additionally, changes in market makers' positions also constitute an important background factor. For example, Wintermute transferred over $1.5 billion in assets to trading platforms from late November to early December. Although from December 10 to 16, it saw a net increase of 271 BTC in its holdings, the market still reacted with some panic to its large transfers.

On the other hand, the selling behavior of long-term holders and miners has also attracted significant attention.

The on-chain monitoring platform CheckOnChain has detected a rotation in Bitcoin's hash rate, a phenomenon that usually occurs during periods of pressure on miners and liquidity tightening. On-chain analyst CryptoCondom noted: "A friend asked me if miners and OGs are really selling their BTC. The objective answer is yes; you can check Glassnode's data on miners' net positions and OGs' long-term BTC holdings."

Glassnode data shows that the selling behavior of OGs who have not moved their holdings for the past six months has been ongoing for several months, with a noticeable acceleration from late November to mid-February.

Additionally, with Bitcoin's overall network hash rate declining, as of December 15, according to F2pool data, Bitcoin's total network hash rate was reported at 988.49 EH/s, down 17.25% from the same time last week.

These data align with the current rumors that "Bitcoin mining operations in Xinjiang are shutting down one after another." Nano Labs founder and chairman Kong Jianping also mentioned the recent decline in Bitcoin's hash rate, estimating that at least 400,000 Bitcoin mining machines have shut down, based on an average of 250T (hash rate calculation) per machine.

In summary, the factors contributing to this round of decline include: the Bank of Japan's proactive shift to tightening, which has loosened yen arbitrage trades; the Federal Reserve's inability to provide a clear subsequent path after completing its first rate cut, leading the market to actively lower expectations for liquidity in 2026; and on-chain behaviors of long-term holders, miners, and market makers, which have further amplified the price sensitivity to changes in liquidity.

Original link