Opinion: the collapse of the Japanese stock market triggered the collapse of the crypto market

What’s new? The cryptocurrency market has fallen to its lowest point in five months, largely due to the Japanese stock market’s reaction to recession fears following the Bank of Japan’s recent interest rate hike. Bitcoin and Ethereum reacted by losing value significantly over the past 24 hours, with BTC falling by 17% and Ethereum falling by 23%.

What preceded it? As Bloomberg writes, the downturn in the cryptocurrency market mirrors a broader decline in stocks in the Asia-Pacific region. Japan’s Nikkei 225 index fell by 7%, continuing a downtrend that began last week when the Bank of Japan raised its key interest rate to the highest level in 16 years.

The BOJ raised the interest rate to 0,25%, up from its previous range of 0% to 0,1%. This is the highest rate since 2008 and is part of a plan to tighten monetary policy, including a reduction in Japanese government bond purchases.

What were the implications? Shortly after the market opened, the Nikkei 225 index fell more than 2400 points, and then within an hour it was down another 1900 points, collectively losing 12%. At the peak of the collapse, the index was down to 31 156,12 points, with the depth of the fall reaching 13,23%. This figure was greater than the historic fall on Black Monday in 1987.

Source: X.com

Investor confidence has declined significantly, due to the rising yen, tighter monetary policy, and the deteriorating economic outlook in the United States. Many believe that a recession may be on the horizon in the US as the chances of a major economic downturn have increased. Economist Peter Schiff noted:

“Central banks have played with fire for years. Now the world is about to be burned. They kept interest rates artificially low, blowing up a global debt bubble. But as inflation reared its head, rising rates pricked that bubble. Now it’s time to pay the piper. The game is over.”

Source: X.com

Foreign investors sold a net 1,56 trillion Japanese yen ($10,7 billion) worth of Japanese stocks and futures in the week from July 19 to July 26, according to Japan Exchange Group Inc. once the main drivers of the market’s rebound. Growing tensions between Iran and Israel are also worsening the situation. Collectively, such events harm the cryptocurrency market as investors become more cautious.