How will rising Japanese future interest rates affect Bitcoin

Source: PortaldoBitcoin Original Title: How the Rise in Japan’s Future Interest Rates Affects Bitcoin Original Link: The sharp increase in Japan’s future interest rates, especially since January 19, has sounded an important alarm in global markets and the Bitcoin market. The 30-year rate has reached about 3.9%, and the 40-year rate has hit 4.2%, which is a historic high for a country that has faced near-zero interest rates for decades.

This movement occurs against a delicate backdrop: higher-than-expected inflation, difficulties in government bond demand, and a debt-to-GDP ratio exceeding 260%. When markets demand higher interest rates to finance a government burdened with debt, the signal is clear: market perceptions of fiscal trajectories and long-term repayment risks are increasing.

In the short term, this trend mainly impacts Bitcoin through two channels. The first is arbitrage trading. Japan has long been a source of cheap financing for global investors, who borrow in yen and invest in higher-yielding assets worldwide, including stocks and cryptocurrencies. As interest rates rise, this cost increases, making the strategy less attractive, leading to the unwinding of these positions and selling pressure.

The second channel involves the balance sheets of Japanese banks and financial institutions. Rising interest rates lower the prices of existing bonds, forcing these institutions to sell overseas assets to restructure capital, which helps explain declines in both traditional and crypto markets.

A simple way to understand this process is to view global liquidity as a tide. Over the years, Japan’s low financing costs kept this tide high, with more funds flowing and supporting risk assets. When interest rates rise, the tide begins to recede.

Since Bitcoin is highly sensitive to liquidity, it is like a boat floating on this water: when the tide drops, the boat floats at a lower water level, which in the short term translates into lower prices. Additionally, there is a contagion effect, as rising Japanese interest rates begin to pressure the interest rate curves of other economies like the US and Europe, worsening global risk sentiment.

But behind this movement lies a deeper structural interpretation. Rising long-term interest rates reflect greater distrust among investors regarding government fiscal and monetary policies and the sustainability of public debt. It is this very distrust that has driven the creation of Bitcoin.

This asset emerged as an alternative to the monetary system dependent on political decisions, offering a scarce, decentralized form of currency that is not constrained by anyone. As markets start pricing in the increasing risks of sovereign debt, it actually reinforces the long-term case for Bitcoin’s existence.

Therefore, although rising interest rates in the short term may exert downward pressure on Bitcoin prices through liquidity and arbitrage channels, the broader context points in a different direction. We see a clear pursuit of hard assets—assets that do not carry credit risk, such as gold and silver—which have recently performed strongly.

From a fundamental perspective, Bitcoin perhaps embodies the greatest attributes of modern hard assets, but in this scenario, it has not yet been priced as such. This opens an interesting asymmetry: while the market recognizes the risks that justify Bitcoin’s existence, the asset’s price has not fully reflected this recognition. The question is whether this asymmetry can persist or if we are facing a gradually emerging related opportunity.