BOJ Rate Hike Sparks Concerns of Crypto Sell-Off, Ethereum Under Pressure

• The BOJ’s 0.5% rate hike follows historical trends of crypto sell-offs, prompting concerns about a downturn in February or March.  
• Ethereum’s market performance remains sensitive to macroeconomic factors, with the Federal Reserve’s stance on QE influencing its path.  
• Analysts expect continued rate hikes by the BOJ, potentially increasing market volatility for both traditional financial assets and cryptocurrencies.

The Bank of Japan (BOJ) has now increased its interest rate to 0.5% for the short term, which is the highest rate since 1990 due to its strong belief in Japan’s economy. This has been congruent with past trends whenever the interest rate rises, which in the past has ignited a downturn in the market with a focus on cryptocurrencies. Many are now keeping their fingers crossed hoping they do not repeat the same in search of evidence of a similar situation.

Crypto Sell-Off Trend Linked to Rate Hikes

Historically, rate hikes by the BOJ have been followed by sharp sell-offs in the crypto market. ITC Crypto’s founder, Benjamin Cowen, pointed out that rate hikes in March and July caused significant price drops in April and August, respectively. The latest rate increase has sparked concerns that a similar downturn could hit the crypto market in February or March. Ethereum, in particular, has been vulnerable to such macroeconomic events, and investors are on alert for a possible market correction.

Impact on Ethereum and Federal Reserve’s Role

Ethereum’s market trajectory remains particularly sensitive to changes in global monetary policies. As Cowen noted, the Federal Reserve’s stance on quantitative easing (QE) could influence Ethereum’s performance. If the Fed continues its opposition to QE, Ethereum’s USD pair could experience further declines. However, such a drop could prompt the Fed to reconsider its approach, potentially sparking a recovery for Ethereum later in 2025. The ETH/BTC ratio, which tends to rise when QE resumes, could see a similar pattern if the Fed returns to money printing.

B OJ’s Approach and Market Outlook

The BOJ’s latest move is part of a broader shift in Japan’s economic policy, as the central bank raises rates after years of low interest rates. Governor Kazuo Ueda has adopted a cautious approach, with analysts predicting that Japan could raise rates to 0.75% by mid-year. Some experts suggest rates could even reach 1.5% within two years, further intensifying market volatility. These hikes could cause instability not only in traditional financial markets but also in cryptocurrencies. 

As the global financial landscape adjusts to these shifts, Ethereum’s struggles to break past the $4,000 mark remain a key concern. A potential downturn in the coming months could prompt renewed liquidity injections, which would benefit the ETH/BTC pair, as seen in past cycles.