Bitcoin (BTC) has seen a 4% decline, dropping below the $86,000 threshold on Monday, as speculation intensifies regarding the future of the cryptocurrency in light of the Bank of Japan’s (BOJ) interest rate decision.
Recently, a poll conducted from December 2 to 9 revealed that an overwhelming 90% of economists—63 out of 70—anticipated the BOJ would raise short-term interest rates from 0.50% to 0.75% in this week’s planned meeting.
Experts Warn Of Impact From BOJ Rate Hikes
Experts on social media have highlighted a troubling trend: during the last three rate hikes by the BOJ, Bitcoin has generally fallen sharply. The data shows declines of 23% in March 2024, 26% in July 2024, and 31% in January of this year.
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At current levels just below $86,000, it suggests that if the cryptocurrency undergoes another 20% correction, it could plummet to around $68,800. This would widen the gap from its all-time high of $126,000 by nearly 46%.
Experts have also noted that the market dynamics in Japan significantly influence Bitcoin’s performance since Japan holds the largest amount of US debt globally.
As Japanese interest rates rise, capital frequently returns to Japan, resulting in lower dollar liquidity. This reduction in dollar liquidity can lead to the divestment of riskier assets such as Bitcoin.
On November 30, a concerning sign surfaced when the confirmation of Japan’s upcoming rate hike triggered a drop in Bitcoin to around $83,000, wiping out nearly $200 billion from the total cryptocurrency market.
Nevertheless, the pessimistic sentiment surrounding Bitcoin is not solely due to Japan’s actions. Market analyst known as NoLimit recently pointed to another significant factor: China’s renewed crackdown on Bitcoin mining.
China’s Mining Crackdown Spurs Bitcoin Sell-Off
The analyst recently asserted that China has tightened regulations, notably impacting operations in Xinjiang, where many crypto mining setups were shut down in December, resulting in approximately 400,000 miners going offline.
The impacts of this sudden mining activity shift are evident, as the Bitcoin network hashrate has dropped by about 8%, signifying that fewer miners are currently contributing to the network.
NoLimit indicates that this abrupt change leads to immediate revenue losses for miners, who may need to sell Bitcoin to cover operational expenses or relocate their setups. This results in real selling pressure on the market, contributing to the downward price trend observed on Monday.
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Despite the short-term challenges this creates, analysts clarified that it does not signify a long-term bearish outlook for Bitcoin. Instead, he interprets it as a temporary supply shock driven by regulatory changes rather than a shift in demand.
Historical trends support this perspective: when China has previously targeted miners, the cycle follows a familiar pattern: miners are forced offline, hashrate decreases occur, prices fluctuate, and eventually, the network adapts, allowing Bitcoin to progress once again.
Featured image from DALL-E, chart from TradingView.com
