On the morning of December 1st, BTC experienced a flash crash dropping to $87,000, while ETH fell directly below 5 points, causing over a billion dollars in liquidations across the network. This wave of bloodshed was not the work of some mysterious market maker; the real culprit was hiding in a conference room in Tokyo—officials from the Central Bank of Japan held a meeting, and the market immediately sensed the hint of a 25 basis point rate hike on December 18th, causing global arbitrage funds to explode.

**Why can the interest rate hike of the yen blow up the crypto world?**

Japan's interest rates have remained at an ultra-low level of 0.25% for many years, and international capital has seized the opportunity: borrowing yen, converting to USD, and diving into high-yield assets like Bitcoin and U.S. stocks to arbitrage, playing the interest rate differential game, with a scale reaching trillions of dollars. However, once Japan raises interest rates, the rules of the game change — the cost of borrowing yen rises sharply, and arbitrageurs have no choice but to sell their cryptocurrencies for USD and then convert back to yen to repay their debts. This chain reaction has made the crypto market the first place trampled on during the capital flight.

Looking back at history, we can see how brutal this move can be: In August 2024, when Japan raised interest rates by 25 basis points, Bitcoin fell 20% in a single day, and global risk assets evaporated by 3 trillion USD.

**Liquidity, Leverage, Panic - How to Execute the Triple Kill Combo?**

As soon as the arbitrage funds were withdrawn, the market buy orders instantly dried up, and the thickness of the exchange order book reached the lowest point of the month. Traders in the crypto space generally opened leverage rates of 50 to 100 times, and a slight fluctuation of 5 points in price could trigger hundreds of billions of dollars in forced liquidation orders. On December 1st, within one hour, long positions getting liquidated burned through 378 million dollars.

What’s worse is the contagion of emotions — with Japan tightening its monetary policy while the Federal Reserve is still easing, the mismatch between the two policies has heightened uncertainty, causing the market's fear index to soar to its highest level of the year.

**What to do next?**