- BOJ rate hikes often trigger crypto downturns, with Ethereum facing key risks.
- Ethereum’s recovery may depend on the Fed’s stance on quantitative easing.
- BOJ’s expected mid-year hike could fuel more volatility in global markets.
The Bank of Japan’s (BOJ) latest interest rate hike raised concerns about a potential market downturn, particularly in crypto. Historically, crypto markets have displayed a trend of sharp sell-offs following BOJ rate increases.
Founder and CEO of ITC Crypto, Benjamin Cowen noted that rate hikes in March and July triggered significant sell-offs in April and August. With the BOJ raising rates again last week, another sell-off could occur in February or March. Additionally, the Federal Reserve’s stance on quantitative easing (QE) might affect Ethereum’s path in the coming months.
BOJ Rate Hikes – Market Impact
The BOJ increased short-term interest rates to 0.5%, the highest in 17 years. The move signaled confidence in Japan’s economic growth, stable inflation, and rising wages. However, historical data suggests that these hikes often lead to crypto market sell-offs about a month later.
Cowen noted in his earlier analysis that Ethereum experienced sell-off events in April and August, in line with previous BOJ hikes. Given this trend, investors are watching the market for another potential downturn following the latest rate increase.
A survey of economic experts revealed that 56% expect the BOJ to raise rates again by July, likely to 0.75%. Some analysts predict rates could reach 1.5% over the next two years. These hikes may cause increased volatility, affecting both traditional financial markets and cryptocurrencies. As Japan’s central bank relaxes its long-standing monetary policies, global markets, including crypto, must prepare for possible turbulence.
Related: BitMEX’s Arthur Hayes Links BOJ’s Rate Decision to US Politics
Ethereum’s Vulnerability and Potential Rebound
Ethereum remains particularly sensitive to macroeconomic developments, with analysts watching the Federal Reserve’s next move. If the Fed holds its position against QE, Cowen suggests that Ethereum’s USD pair could drop further.
Such a drop might eventually force the Fed to change course, potentially sparking a strong recovery in March 2025. Historically, ETH/BTC ratios have inched up when QE starts, and a similar pattern could recur if the Fed reinstates money printing.
Beyond the BOJ’s influence, Ethereum has struggled to break past the $4,000 mark. This level remains a psychological barrier for investors. If Ethereum faces another downturn in February or March, it could warrant renewed liquidity injections, ultimately benefiting the ETH/BTC pair. Past cycles also show that Ethereum’s lowest points have coincided with the start of QE, increasing the chances of a rebound.
Related: Digital Yen in Its Final Phase: What Does this Mean for Crypto?
BOJ Policy Outlook and Market Implications
Governor Kazuo Ueda has steered Japan’s monetary policy carefully, implementing three rate hikes since taking office. Analysts expect him to maintain this measured approach to avoid market disruptions. Still, disagreements persist over the BOJ’s communication strategy, with some experts arguing the bank’s messaging could improve.
The BOJ’s meetings in March and April will offer clues about its next moves. With inflation and wage growth stable, another hike to 0.75% by mid-year seems likely.
If this occurs, market volatility may continue, affecting both traditional and crypto markets. Also, if the Fed changes its stance on QE, Ethereum could see a marked turnaround, potentially reversing its recent struggles.
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