Market News

The Bank of Japan on Monday raised the likelihood of a rate hike, which could impact the Yen carry trade as it relates to Bitcoin purchases.

Key Points

The price of Bitcoin fell 5.2% over the past 24 hours through 5 p.m. Eastern time Monday to $86,447. The largest digital asset had reclaimed the key $90,000 support level last week but fell through it again on Sunday. In earlier trading Monday, it had fallen as much as 8.3% since the same time on Sunday.

The main driver of Monday’s fall was a signal from Japan’s central bank that a rate hike was more likely. “The Yen carry trade has been the liquidity supplier of choice for years (decades) for assets, crypto was no different,” Mizuho analyst Daniel O’Regan wrote in a note Monday morning. That’s when investors borrow money in Japanese Yen, which has lower interest rates than other currencies, before converting it into another currency to buy potentially high-yielding assets such as cryptocurrencies.

General worries about increased risk in global assets is a factor, too. “Bitcoin shows weak development in a falling trend channel in the short term. This signals increasing pessimism among investors and indicates further decline,” according to technical analysis of price trends released by Investtech. “The currency has support at

The Crypto Fear and Greed Index, which is a composite measurement of crypto investor sentiment, was also flashing red, with the index at 20 out of 100, indicating “Extreme Fear.”

Cryptos had been at the leading edge of a deterioration, and then recovery, in wider risk sentiment in recent weeks, falling through November but bouncing back in the last week of the month.

An important macroeconomic factor for crypto traders, like investors in the stock market, has been the question of whether the Federal Reserve will cut interest rates in December, easing lending conditions and boosting liquidity.

The tumble in Bitcoin to start the week could be a bearish signal for risk sentiment more broadly. History also suggests that December is not the best month for Bitcoin.

Bitcoin has only risen in the period between Black Friday and the end of the year in 54% of cases since 2014, according to Dow Jones Market Data. Since Bitcoin was trading above $91,000 to close out last week, the flagship crypto is off to a poor start.