The long-awaited peace announcements have arrived in the ongoing conflict between the US and Iran. US President Donald Trump stated that the US and Iran have agreed to open the Strait of Hormuz freely, and indicated Friday as the date for the official signing.
Positive developments between the two countries boosted Bitcoin and gold, while causing a sharp drop in oil prices.
While the state of peace allowed Bitcoin to reach its highest level in two weeks, a new challenge awaits $BTC.
Market analyst Omkar Godbole says tomorrow’s Bank of Japan (BOJ) interest rate decision will be critical for Bitcoin. According to the analyst, the BOJ is expected to raise its benchmark interest rate to between 0.75% and 1%, the highest level since 1995.
The Bank of Japan’s decision is expected on June 16th, and a potential interest rate hike could unravel the yen carry trade, increasing volatility for Bitcoin ($BTC).
At this point, the analyst notes that a potential BOJ interest rate hike could trigger the unraveling of the yen carry trade, reminiscent of the 2024 $BTC decline, and lead to a sharp price drop.
Yen carry trade is a strategy where investors borrow yen at low interest rates and invest it in riskier assets that yield higher returns; undoing means selling the risky assets to repay the borrowed yen.
According to data from the US Commodity Futures Commission (CFTC), leveraged funds’ short positions on the yen exceeded 115,000 contracts as of June 9, reaching their highest level since November 2017. If the Bank of Japan (BOJ) raises interest rates as expected and signals further tightening, these short positions could be liquidated, leading to a strengthening of the yen. This could negatively impact carry trades, trigger sell-offs in risky assets, and destabilize the cryptocurrency market.
At this point, the analyst stated that the current situation resembles the period immediately preceding the interest rate hike on July 31, 2024. During that time, short positions in the yen were at record levels, and the subsequent squeeze on these short positions caused the yen to appreciate. This led to the unraveling of the yen carry trade, and following the BOJ’s interest rate hike announcement, the $BTC price also dropped from approximately $65,000 to $50,000 within a week.
*This is not investment advice.
