Traders love volatility, but of late, Bitcoin (BTC) has offered none. In the past, cryptocurrency has seen negative correlations with bond yields, bond market volatility, the dollar index, and global liquidity conditions. As this [BOJ] policy starts to reverse, it could contribute to causing global yields to rise, particularly as the move is happening at a time bond markets have been shaken by ongoing hiking cycles.
The Bank of Japan’s (BOJ) yield curve control (YCC) program has been a major source of global liquidity since September 2016. On Friday, the BOJ is expected to soften its grip on the country’s bond markets, potentially influencing global bond markets, exchange rates, and liquidity conditions. This could have an impact on the cryptocurrency market, as Bitcoin and other digital assets are sensitive to changes in global liquidity.
According to several investment banks, the BOJ might widen the YCC band to 100 basis points, indirectly tapering the liquidity-boosting bond purchases. This could lead to Japanese investors selling their foreign bond holdings in favor of domestic bonds, lifting foreign bond yields and denting money flow into risk assets. The International Monetary Fund (IMF) has urged Japan to move away from YCC to prepare for eventual lift-off in interest rates from the current -0.1%.
At press time, Bitcoin was trading at $29,470, representing a 0.4% gain on the day. Changes to the BOJ’s YCC program could bring volatility to the crypto market, as Bitcoin has seen negative correlations with bond yields, bond market volatility, the dollar index, and global liquidity conditions.