Dec 16, 2025
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Bitcoin Faces Volatility Amid Yen Carry Trade Unwind
The unwinding of the yen carry trade is impacting global markets, with potential consequences for Bitcoin and other cryptocurrencies. Here's a summary of the situation:
- The yen carry trade involved borrowing cheaply in Japan and investing in higher-yield US assets, profiting from the interest rate differential.
- Recent changes: Japan is raising rates while the Fed cuts them, compressing the rate differential and making the trade less profitable.
- This shift forces investors to sell US assets to repay yen loans, draining liquidity from US markets.
- Graham Stephan highlights that this could lead to volatility in risk assets like Bitcoin, which often reflects early shifts in risk appetite and leverage.
- The Fed's recent actions include cutting rates for the third time this year and ending Quantitative Tightening, signaling a return to monetary easing.
- Potential impacts on Bitcoin: A sharp deleveraging impulse from carry unwinds could hit prices quickly, while easing policies may take longer to influence the market.
- Bitcoin’s volatility is noted, but it historically doesn’t fall below its mining cost, currently around $71,000.
At press time, BTC traded at $87,082.
