A looming death cross for Bitcoin BTC/USD, a typically bearish technical pattern, may actually signal a bullish shift, similar to what occurred in September 2023.
What Happened: This shift comes as the influential Bank of Japan (BOJ) governor, Shinichi Uchida, announced that the central bank would not increase borrowing costs amid market instability, thereby weakening the case for the continued unwinding of yen carry trades and risk aversion in assets like Bitcoin.
As Bitcoin approached a potentially ominous chart formation known as the “death cross,” where the 50-day simple moving average crosses below the 200-day simple moving average, the cryptocurrency market braced for a downturn.
However, statements from the BOJ Governor have altered the landscape, offering a lifeline to risk assets, including Bitcoin, Coindesk reported.
Uchida’s remarks, emphasizing the need for continued monetary easing in the face of market volatility, have effectively put the brakes on the unwinding of the popular “yen carry trade.”
This strategy, which involves borrowing in low-interest Japanese yen to invest in higher-yielding assets, had been a significant driver of risk-on sentiment in recent years.
“As we’re seeing sharp volatility in domestic and overseas financial markets, it’s necessary to maintain current levels of monetary easing for the time being,” Uchida stated in his address to business leaders in Hakodate, Hokkaido.
The impact of these words was immediate and far-reaching. Bitcoin, which had experienced a sharp decline from $66,000 to $50,000 in the days following the BOJ’s initial rate hike last week, swiftly rebounded.
The cryptocurrency briefly surpassed $57,300, demonstrating a remarkable recovery amid broader market stabilization.
Simultaneously, the Japanese yen weakened against the U.S. dollar, while Japan’s Nikkei index surged by 4%.
Also Read: What Really Caused Bitcoin, Ethereum To Crash? Analyst Has Answers
Why It Matters: This coordinated movement across various asset classes signaled a significant shift in market sentiment, with risk appetite seemingly restored.
Market observers were quick to note the significance of the BOJ’s stance.
An analyst known as Global Macro commented on social media platform X, “The BOJ struck the ‘Yen put,’ and the Nikkei will be driving the Nasdaq and S&P to their pre-selloff levels.”
This sudden reversal in market dynamics underscores the complex interplay between monetary policy, currency markets and digital assets.
The yen carry trade, which had been unwinding due to the BOJ’s initial hawkish move, now appears to be stabilizing, providing support for risk assets across the board.
Andy Constan, CEO of Damped Spring Advisors, offered insights into the mechanics of this market phenomenon.
“The unwind of the trade results in inelastic price moving flow to buy yen and sell risky assets. The sale of the risky asset also impacts the much bigger set of levered investors who don’t have any yen exposure at all and they get margin called as well,” Constan explained in a detailed analysis.
Read Next:
Image: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
