Why Bitcoin Traders Fear a Repeat of July 2024’s Crash Next Week

Bitcoin is facing renewed pressure as markets anticipate a potential yen carry-trade shock, mirroring the volatility of last summer’s crash. Analyst Benjamin Cowen highlights a confluence of factors – the Fed’s easing policy and the BoJ’s tightening stance – that could trigger a similar downward spiral. This scenario echoes the July 2024 event, where a policy shift in Tokyo triggered rapid deleveraging across risk assets, including crypto. The core mechanism – when US policy shifts toward looser conditions while Japan tightens – is the same, leading to unstable assets selling off hard.

The Ripple Effect of Japanese Policy

The precise timing of this potential crash is crucial. Markets aggressively priced Fed easing while the BoJ surprised with a hike, creating a prolonged yen carry trade. Bitcoin capitulated into this strategy, and found a low 1 week later. Truflation’s analysis underscores the significance of this dynamic, revealing that large institutions and commercial banks are borrowing money in Yen where interest rates are historically low, investing in US assets to “earn healthy 3–4%” on the spread, or investing in stocks and bonds to get much more. This is reinforced by a BoJ policy of keeping the yen cheap against the dollar.

Leveraged Risk and the Yen Carry Trade

The danger arises when stocks fall and the yen starts to rise or is expected to rise. Then “institutional and Commercial borrowers may exit, so as not to get stuck with significant losses on their Yen debts.” They “sell whatever assets they purchased in the US and get back into Yen to pay back their loans in Japan, resulting in a cascade of US asset sales and Yen purchases.” After “years of Yen carry trade being a relatively safe way for big banks and institutional investors to make easy money,” even a modest normalization can force broad, mechanical de-risking – and Bitcoin, as a liquid, leveraged risk asset, sits directly in that firing line.

The Kevin Cowen Perspective

Crypto trader Kevin (@Kev_Capital_TA) emphasizes the tight window, noting that we have the Fed’s preferred measure to track inflation via the Core PCE inflation and the FOMC signaling a potential shift in policy. At the same time, the BoJ is openly signalling it will “consider the pros and cons” of a hike at its 18–19 December meeting, with markets now pricing a high likelihood of tightening and 10-year JGB yields near multi-decade highs. This combination – Fed easing expectations plus BoJ tightening risk – is precisely the configuration that threatens the yen carry and makes a repeat of July 2024’s pattern plausible: a sharp flush in Bitcoin and other risk assets, followed by a bottom once forced deleveraging runs its course.

Bitcoin’s Latest Leg Down

At press time, BTC traded at $92,235.

Key Takeaways

A few days ago, BitMEX founder Arthur Hayes connected that macro repricing directly to Bitcoin’s latest leg down. “BTC dumped cause BOJ put Dec rate hike in play. USDJPY 155–160 makes BOJ hawkish,” he argues, framing the sell-off as a funding shock rather than a crypto-native event.

The Macro Context

Into December, futures and economist surveys put the probability of a Fed cut at roughly 80–87% for the 9–10 December meeting, even as the committee remains divided. At the same time, the BoJ is openly signalling it will “consider the pros and cons” of a hike at its 18–19 December meeting, with markets now pricing a high likelihood of tightening and 10-year JGB yields near multi-decade highs.

The Implications

This confluence – Fed easing expectations plus BoJ tightening risk – is the configuration that threatens the yen carry and makes a repeat of July 2024’s pattern plausible: a sharp flush in Bitcoin and other risk assets, followed by a bottom once forced deleveraging runs its course.

Further Reading

At press time, BTC traded at $92,235.

FAQ

What is the yen carry trade?
The yen carry trade is a strategy where investors borrow in the Yen, use that money to invest in US assets, and then convert the Yen back into US dollars to repay their loans.
Why is Bitcoin vulnerable to a crash?
Bitcoin’s high leverage and correlation with risk assets make it susceptible to sudden market declines.
What is the significance of the Fed and BoJ’s policy announcements?
The Fed’s easing policy and the BoJ’s tightening stance are key drivers of potential market volatility.
How does the BoJ’s announcement impact the Yen?
The BoJ’s announcement regarding a potential rate hike significantly influences the Yen’s value and market sentiment.
What is the probability of a Fed cut?
Current market forecasts suggest a high probability of a Fed cut in the coming months.