The cryptocurrency market, with Bitcoin (BTC) and Ethereum (ETH) at the forefront, is working to recover from the recent global market crash. A growing divergence between major stock indexes and Bitcoin has increased fears of further declines in the crypto sector.
Bitcoin’s price remained around $58,000 over the past 24 hours, while Japan’s NIKKEI 225 Index jumped nearly 4% on Friday, showing a sharp contrast between the two markets.
According to analysts, the global market crash is largely due to Japan’s sudden decision to raise interest rates after nearly two decades of keeping them negative. For 17 years, Japan maintained rates below zero to boost its economy.
However, with global inflation rising, the Bank of Japan (BoJ) raised interest rates twice this year, though they are still lower than those in other major economies.
As the Japanese yen weakened by over 5% last week, there has been a significant increase in carry trades—also known as currency hedging—by investors.
“Global central banks are now shifting toward easing, barring the BOJ, which will keep rates low relative to peers. That means the carry trade is poised to return, provided equity markets and the Chinese currency remain stable,” Mary Nicola, Markets Live Strategist, noted.
Investors are now awaiting BoJ Governor Kazuo Ueda’s speech on August 23, which coincides with a speech by U.S. Federal Reserve Chair Jerome Powell at Jackson Hole.
If Ueda signals a dovish stance while Powell remains hawkish, the gap between U.S. and Japanese interest rates could grow, attracting more investors to carry trades.
Bitcoin has been stuck in a downtrend since March, even as demand from institutional investors has increased. A potential market crash fueled by the rise in carry trades could significantly affect the crypto market.
However, anticipated interest rate cuts in the U.S. by year-end could trigger a major bullish trend in the crypto space, offering hope for a recovery.
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