The Bank of Japan's (BoJ) decades-long policy of near-zero or negative interest rates made the yen a cheap borrowing currency. This fueled the "yen carry trade," where institutions borrowed yen, converted it to USD or EUR, and invested in higher-yielding assets.

These assets included stocks, emerging markets, and significantly, cryptocurrencies like Bitcoin. Bitcoin's 24/7 trading and volatility made it attractive for leveraged, risk-on positions, benefiting from this abundant capital.

Even a slight interest rate hike by the BoJ can be disruptive due to the shift in market expectations after extended easing. When markets anticipate a tightening cycle, carry trades are likely to unwind rapidly.

A stronger yen, coupled with rising global yields, creates simultaneous pressure on riskier assets. Bitcoin, with its leveraged market structure, often reacts swiftly. It can break through technical levels, triggering cascading liquidations.

Ultimately, when global liquidity tightens, Bitcoin tends to be one of the first assets to feel the impact.

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