NAIROBI (CoinChapter.com)— The cryptocurrency market is experiencing turbulence as investors unwind their positions in the Yen carry trade, stirring concerns reminiscent of the 2008 financial crisis.
The turmoil has injected volatility across financial sectors, with experts like Ran Neuner cautioning that a potential economic downturn looms unless the Federal Reserve intervenes promptly.
Yen Surge Triggers Crypto and Stock Market Turmoil
The global cryptocurrency market cap plunged 16.4% in the last 24 hours, now standing at $1.88 trillion. The Japanese yen’s appreciation against the U.S. dollar triggered a chain reaction, forcing traders to unwind their positions and impacting global markets.
The Bank of Japan (BOJ) recently raised interest rates, strengthening the yen and pressuring investors to repay yen-denominated debts. This led to widespread sell-offs in U.S. stocks and cryptocurrencies.
The yen recently reached mid-Jan. 2024 highs around 145.28, appreciating 10% against the dollar in just over three weeks. The surge follows the BOJ’s decision to increase interest rates by 15 basis points to 0.25%, marking the first hike in 17 years.
Moreover, the BOJ also plans to halve its monthly bond purchases, which could further disrupt carry trade activities.
Ran Neuner from CNBC suggests the Federal Reserve must act quickly to prevent a meltdown similar to 2008. The yen’s appreciation has increased costs for traders who borrowed yen at low rates to invest in higher-yielding U.S. assets, forcing them to liquidate their positions and further fueling the decline.
Cryptos Falling Victim to Yen Carry Trade Reversal?
Cryptocurrencies have been severely impacted as the yen carry trade unwinds. Bitcoin dropped 15%, and Ether plunged 22% in the past 24 hours, leading to a $367 billion decrease in the overall value of cryptocurrencies, according to CoinGecko.
The price drop resulted in over $1.13 billion in liquidations in the derivatives markets, according to Coinglass.
Mazen Salhab, Chief Market Strategist MENA at BDSwiss, explained that fears of a recession are driving investors to move from risk assets to bonds, impacting the U.S. dollar. Disappointing U.S. labor data has raised concerns about the Federal Reserve cutting rates aggressively.
While high-yielding currencies have fallen, safe-haven currencies like the Swiss franc and yen have gained. U.S. Treasury yields are under pressure, and upcoming PMI data could influence the market, with positive numbers potentially supporting the dollar.
Independent crypto analyst Moustache echoes this sentiment, highlighting the eerie similarities between the current Japan stock market crash and the COVID-19 crash of 2020. This comparison adds to the anxiety, drawing attention to the potential for further market instability.
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