Recently, those of you trading in the market may not have realized an impending risk — the Japanese Central Bank, one of the most critical liquidity sources globally, is about to tighten its monetary policy.

According to official signals, the meeting on December 19th is highly likely to announce a rate hike, with market betting probabilities exceeding 80%. It may sound distant, but its impact on the crypto market could be significant.

Why is this so serious? Over the past 30 years, Japan’s ultra-low interest rates have created a massive arbitrage mechanism — global traders borrow yen at almost zero cost, then invest in high-yield assets like US stocks, BTC, ETH. Once the rate hike begins, this "free capital" will be withdrawn, forcing hot money to exit these markets to pay back debts.

A lesson from history is right in front of us: after the last rate hike by the Bank of Japan in July this year, BTC dropped 23% within 24 hours, and over 20 billion USD worth of positions were liquidated across the network instantly. Although the market is psychologically prepared this time, there are still nearly 1 billion USD in leveraged positions lurking in the crypto space, with DeFi ecosystems being the most affected. If a chain reaction of liquidations triggers, the situation could become very ugly.

The key variable this time is the magnitude of the rate hike. If it's a modest 25 basis points, the market might absorb it. But if it’s an aggressive 50 basis points, it could trigger a wave of liquidations.

A straightforward piece of advice: if you're using leverage, now is the time to reduce your multiple to below 3x, and ensure your margin is sufficient — don’t become one of those automatically liquidated. Spot investors can set stop-loss orders at key levels for BTC (85,000 and 80,000) to leave some room to retreat. Most importantly, control your impulses before the December 19th meeting — don’t rush to buy the dip, wait until the true outcome is revealed.

Will this be a golden opportunity for the crypto market or a sign of trend reversal? Everyone’s risk tolerance is different. What do you think? Share your thoughts on how to respond in the comments.