The interest rate hike decision on the 19th is about to be announced. The market has basically been reassured, and everyone is waiting to see the outcome. Honestly, this is the main reason for the recent weakness in the crypto space—nothing else.

By the way, last night’s market actually digested some of the rate hike expectations quietly, and the market’s reaction was quite敏感. But that’s not the main point. The key is that tonight at 9:30, the US November CPI data will be released. At this juncture, the market is sure to experience intense volatility, so everyone should be prepared.

Why can these two events shake the entire market? Let’s break it down.

First, about Japan’s rate hike. What was the situation before? Both institutions and retail investors were doing one thing—borrowing yen. Yen interest rates are low, so they borrow yen, exchange it for USD, and then buy stocks, cryptocurrencies, and other high-yield assets, profiting from the interest rate differential. This operation is called arbitrage trading.

But once Japan starts raising interest rates, the game changes. The cost of borrowing yen rises sharply—that’s one aspect. Another is that rate hikes usually push up the yen’s value. What does a stronger yen mean? It means that when you exchange USD for yen, you need to spend more USD to get the same amount of yen. As a result, the previous arbitrage space gets squeezed out.

At this point, investors will act collectively—massively selling off various assets to buy yen and pay back debts. Think about it—such concentrated selling can be fierce, directly pushing down the prices of various risk assets. Cryptocurrencies, being high-risk assets, are among the first affected.

Now, looking at the US CPI data. CPI is a key indicator used to measure inflation.

If this CPI data comes in below expectations, it indicates that inflation pressures are easing. The market will speculate that the Federal Reserve might cut interest rates in January, reducing the dollar’s attractiveness. Funds will flow into other high-yield areas, and the crypto market will benefit.

Conversely, if CPI exceeds expectations, indicating inflation is still high, the Fed is likely to hold rates steady or even delay rate cuts. Investors will sell risk assets to buy dollars and seek safety. This puts pressure on the crypto market and other risk assets.

So, everything depends on how these two data points turn out.