Recently, the Bank of Japan announced a 25 basis point rate hike to 0.75%. After this news was released, many in the community discussed—rising interest rates should theoretically lead to the sell-off of risk assets. However, Bitcoin and Ethereum actually rose. What is the underlying logic behind this?

Let's start with the most direct reason. This rate hike was already priced into the market, with an expected probability exceeding 98%, so there was little surprise. The real key point is that Bitcoin had already fallen for two days before the rate hike, with a total decline of 7.2%, and the negative news was already priced in. By the time the news was officially announced, the sell-off had already happened, and the funds that had been buying the dip started pushing the price up—typical of "selling the expectation, buying the fact."

There is also a deeper factor—the logic of arbitrage trading has not been broken. Japan's current interest rate is 0.75%, while in the US it remains between 5.25% and 5.5%, maintaining a large interest rate differential. Many institutions borrow in yen and then invest in high-yield assets like Bitcoin to earn the interest spread. Although the Bank of Japan raised rates, they quickly stated that "real interest rates are still negative, and the money supply remains loose," which dispels the idea of large-scale liquidation of arbitrage positions.

Another hidden driver is the depreciation of the yen. After the rate hike, the market initially expected the yen to appreciate, but instead, the opposite happened—the yen against the dollar fell to 156, hitting a new low for the year. Domestic Japanese investors holding yen face depreciation, and they need to hedge somewhere. Bitcoin and other cryptocurrencies have become alternative safe-haven assets. Historical data shows that during yen depreciation cycles, the negative correlation between Bitcoin and the yen exchange rate can reach -0.7. In other words, the more the yen falls, the more attractive Bitcoin becomes.

However, there are short-term risks. On December 26, $23 billion worth of Bitcoin options will expire, with the maximum pain point at $85,000. This could trigger intense battles between bulls and bears, leading to significant volatility. The funding rate for perpetual contracts has also risen to 0.15% (annualized 55%), indicating that leverage is accumulating, and short-term correction pressure definitely exists.

In the medium to long term, two key variables should be monitored: one is the yield on Japan's 10-year government bonds. If it breaks above 2%, domestic Japanese funds might flow back into the crypto market, which could suppress prices. The other is the Federal Reserve. If expectations for rate cuts in 2024 strengthen, the dollar will weaken further, which would open up greater room for cryptocurrency prices to rise.