Top 3 Reasons Behind Today’s Crypto Market Crash (January 20)

As Bitcoin dips, the cryptocurrency market is experiencing a significant downturn along with an increase in the Yen, causing global risk trades to unwind.

Key Takeaways

Japanese Bond Yields Rise: The Bank of Japan is expected to maintain higher interest rates, which impacts Bitcoin and other high-risk assets negatively.
US-NATO Trade Tensions: New tariffs imposed by President Trump could lead to heightened trade war fears and further strain the crypto market.
Decreasing Futures Market Activity: A notable drop in futures market open interest indicates reduced investor demand, contributing to the market's downturn.

Top 3 reasons for today's crypto market crash (Jan. 20)

The overall cryptocurrency market is witnessing a decline, with Bitcoin (BTC) and many altcoins showing negative trends. In the past 24 hours, the total market valuation has decreased by 2%, bringing it down to $3.08 trillion.

Crypto market cap | Source: CMC

Japanese Bond Yields Are Soaring

Japanese government bond yields have reached their highest levels in several years, indicating that the Bank of Japan may sustain a hawkish monetary policy throughout this year. Analysts at Citigroup predict that the bank could implement three rate hikes, raising the benchmark rate to 1.50%, a level not seen in decades.

The likelihood of additional hikes has increased after the Japanese yen experienced a sharp decline. Prime Minister Sanae Takaichi has announced potential tax cuts should she win the upcoming election in February. The resulting higher interest rates in Japan pose a risk to Bitcoin and other speculative assets, primarily due to the unwinding of long-term carry trades. A carry trade involves borrowing in a country with low interest rates and investing in a country with higher rates.

Trade War Tensions Between the US and NATO Allies

The crypto market is also facing pressure due to increased geopolitical tensions. President Donald Trump has decided to impose new tariffs on significant allies, including the United Kingdom, Norway, Sweden, and Denmark. This action follows heightened tensions surrounding U.S. claims over Greenland, just before the World Economic Forum in Davos.

These controversial comments, which included jabs at European leaders like France’s Macron, have raised concerns over a potential new transatlantic trade war, risking further destabilization of the NATO alliance. In response, EU leaders are contemplating retaliatory duties on approximately $108 billion worth of U.S. imports. Trump's aggressive stance has triggered fears of an escalating conflict that could undermine international relations, and the Supreme Court is expected to address the legality of these tariffs shortly.

Decline in Futures Market Interest

The ongoing crypto market crash is also being driven by a drop in activity within the futures market. Recent data from CoinGlass reveals that the open interest in futures contracts has fallen to $136 billion, down from a high of $146 billion earlier this month.

A decrease in open interest is considered bearish, as it suggests a waning demand from investors in the futures market. Typically, a decline in open interest correlates with a decrease in cryptocurrency prices coupled with increased liquidations, signaling a challenging environment for traders.

In summary, the convergence of rising bond yields in Japan, trade tensions between the U.S. and its NATO allies, and falling demand in the futures market are critical factors driving today's cryptocurrency market downturn.