What’s next for Bitcoin and altcoins as the Bank of Japan raises interest rates to a 17-year high
In line with market expectations, the Bank of Japan (BoJ) announced a further 25 basis points hike in interest rates to 0.5%. Japan is seeing this interest rate level for the first time in 17 years after the 2008 financial crisis. The market appears to have factored in the news in advance, as the Bitcoin price, along with the top altcoins, appears to be heading north by 2-4%. Additionally, the US Dollar Index (DXY) fell which could bode well for Bitcoin and cryptocurrencies.
How will the Bank of Japan’s interest rate hike affect Bitcoin?
With the Bank of Japan announcing a 25 basis point interest rate hike, the Japanese Yen gained strength against the US Dollar in the early trading hours in the Asian market. As we said, Japan is seeing an interest rate of 0.5% for the first time since the 2008 financial crisis.
The latest interest rate hike from the Bank of Japan comes as Japan’s consumer price index (CPI) for the latest period reached 3.6%, beating market expectations of 3.4% and up from the previous reading of 2.9%. Thus, the data clearly indicates increasing inflationary pressures in the Japanese economy.
Will interest rate hike by the Bank of Japan stimulate unwinding of the yen carry trade?
At the end of July last year, the Bank of Japan’s decision to raise interest rates sparked a major panic in the global market with Bitcoin and altcoins collapsing due to fears of unwinding of the yen carry trade. Yen carry trade unwinding typically occurs when investors sell assets purchased using borrowed yen, reversing the initial trade strategy.
Alex Krueger said that this time fears of dismantling the yen carry trade have become much less amid increased volatility in global markets, which reduces the profitability and attractiveness of the yen carry trade. As a result, very few people will engage in leveraged strategies. Moreover, he wrote:
“The Bank of Japan’s actions matter less now than in 2024. The Bank of Japan’s rate hikes are largely irrelevant outside Japan. The USD/JPY move hardly confirms this. Think of it this way. It has been resolved.” The yen carry trade is largely in 2024, and positioning is still far from being fully reestablished.
BTC surges forward as US dollar index declines?
The US Dollar Index (DXY) appears to have reached an important peak at 110.18, indicating a potential major top. Today’s low indicates the potential for a significant decline in the index moving forward.
If the inverse correlation between Bitcoin and DXY continues, this could mark a bullish period for the cryptocurrency, paving the way for what some analysts have described as a “golden time” for BTC. As of press time, Bitcoin’s price is trading 2.69% higher at $104,624, with daily trading volumes jumping 76% to over $101 billion.
Although Bitcoin is eyeing a new all-time high, the price action is still largely between $101K and $106K. As shown below, BTC first needs to break the $106k level to catalyze a rally to all-time highs of $110k and beyond.
Altcoins are gaining momentum
Unlike the collapse that occurred in the cryptocurrency market during the unwinding of the yen carry trade last July, altcoins are showing strength this time around with the price of Ethereum (ETH) rising 4.34% to $3,348 levels despite a rate hike from the Bank of Japan. Likewise, Solana (SOL), Cardano (ADA), Tron (TRX), and Chainlink (LINK) were also up 4% as of press time.
Moreover, with Donald Trump signing an executive order to build a stock of “digital assets,” hopes for a new alternative season are rising once again. Popular cryptocurrency analyst Crypto Rover noted the following:
“Trump is the bullish catalyst for altcoin season. Bitcoin dominance will collapse. After that, daily altcoin gains of 20-25% will become the norm again.
The Altseason index has risen again above the 50 level, showing signs of growing market optimism. It will be interesting to see if top altcoins like XRP, ETH, and SOL will come out on top again.
Bhushan Akolkar
Bhushan is a fintech enthusiast with a deep understanding of the financial markets. His interest in economics and finance has led him to focus on emerging Blockchain technology and cryptocurrency markets. He is committed to continuous learning and stays motivated by sharing the knowledge he gains. In his spare time, Bhushan enjoys reading erotic fiction and sometimes explores his culinary skills.
Disclaimer: The provided content may include the personal opinion of the author and is subject to the market situation. Conduct market research before investing in cryptocurrencies. The author or publication does not accept any responsibility for your personal financial loss.
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