The Bank of Japan's rate hikes are putting Bitcoin through a hardcore stress test.

The price says it all—BTC has dropped from its $104,000 high to hovering around $86,000-$88,000, a decline of more than 18%. And the December rate meeting hasn’t even arrived yet; the market is already reacting in advance. Looking back at last July is even more dramatic: after Japan’s rate hike then, Bitcoin was slashed by almost a quarter in a single day, causing global crypto markets to wail in agony.

The logic behind this isn’t complicated. A rate hike in Japan means money is flowing back, so who’s willing to risk it on highly volatile assets? What’s even more fatal is the collapse of the yen carry trade—over the past few years, many people borrowed zero-interest yen to leverage up and buy crypto, but now with rising rates, those positions have to be closed out and repaid. How fast is the capital retreating? Just look at the liquidity.

The bigger headache is that global liquidity is tightening. Japan is not an isolated case; its monetary policy will have a chain effect on US Treasury yields and the dollar index, squeezing the entire crypto market’s room to survive. Bitcoin is often hyped as “digital gold,” but when liquidity tightens, its high volatility actually becomes a reason for sell-offs.

Keep a close eye on December 19. At this critical juncture, a new round of turbulence could break out at any moment.