Bitcoin price slumped further yesterday, dropping below the USD 16,300 level. At $16,285, BTC reached a price last recorded on November 29. However, a surprising stroke of luck occurred when the Bank of Japan (BoJ) announced an unspoken pivot.
The BoJ dramatically widened the yield curve control margin to 0.50% and significantly increased the number of government bonds it will buy each month. With that, the central bank sent shockwaves through world markets after an unexpected review of its policy to control the yield curve. Every economist had expected the BOJ to leave its policies unchanged.
BoJ sends shockwaves through all markets
Like Jim Bianco from Bianco Research noted, this is a decision of the utmost importance for all markets. This decision is also essential for Bitcoin and the wider crypto market, even though it may not seem like it at first glance. The crypto market still follows market trends and stocks. In addition, high-risk assets like Bitcoin become unattractive when interest rates reach record highs.
As a result of the decision, the yen rose nearly 3% to its highest level since mid-August. Meanwhile, stocks, bonds and the dollar plummeted. The yen also made significant gains against currencies such as the euro, while gold and bitcoin rose.
Remarkably, the share of Japanese government bonds held by the Bank of Japan, measured by market value, also passed 50% for the first time. Due to the huge market impact, BitMEX founder Arthur Hayes made a (funny) comparison between FTX and the FTT token.
It’s like the BOJ is learning lessons from it@SBF_FTX. If you own more than 50% of a market, is it still a market? $FTT = $JGB pic.twitter.com/OePV7VLmf1
— Arthur Hayes (@CryptoHayes) December 20, 2022
However, as Bianco tweeted, the bottom line is that markets “might” need to reconsider their views on central bank policy changes:
If Japan is worried about inflation now, there will be no pivot points for rate hikes in 2023! Powell is hawkish. ECB head Legarde (Mrs Laggard) is now talking hawkish. Kuroda and the BoJ are not taking any steps that reflect inflation concerns.
Bloomberg’s Yuki Masujima said:
The implications extend far beyond Japan – with the BOJ – the last major mainstay in a global monetary tightening shift (excluding China) – now allowing benchmark rates to trade higher than before, the shock will reverberate across global financial markets.
The implications for Bitcoin
As analyst Holger Zschaepitz explained in an earlier tweet, Bitcoin’s initial reaction may have been caused by its price being highly correlated with rising central bank balance sheets. “Bitcoin has traded in tandem with combined Fed, BoJ and ECB balance sheets,” Zschaepitz noted.
Bitcoin rose about $750 or 2% after a dump after shares closed after hours. At the time of writing, BTC was trading at USD 16,753. It will probably go even higher if it breaks through $16,900, which proved to be too strong resistance on the first try.
Featured image from iStock, charts from TradingView.com