Last night, the Bank of Japan announced an interest rate hike of 25 basis points, raising the rate from 0.5% to 0.75%, which is a new high since 1995. On the surface, the market is quiet, but anyone can feel it—this turning point is extraordinary. This is something that happens once in thirty years, and it's really here now. What's most heartbreaking is that it is draining the most scarce resource in the crypto world: Liquidity.

Why can Japan's interest rate hikes have such a big impact on the crypto world? Simply put, it's just two words - arbitrage.

In the past few decades, large global institutions have exploited the loophole of borrowing yen at nearly zero cost, turning around to invest in high-yield assets like US stocks and crypto assets, just waiting to earn the interest rate spread. How big is this trick? It's in the tens of trillions of dollars. This money is like the fuel for the crypto world bull market; the more fiercely it burns, the more exciting the market.

Now the question arises - Japan's interest rate hike means that the cost of borrowing yen rises sharply, and the arbitrage space is squeezed out. Institutions need to sell assets like Bitcoin and Ethereum to exchange for yen to repay debts. The sell and redeem cycle triggers a chain reaction, leading to liquidity being drained completely.

There is a rather scary statistic in history: after Japan's first three interest rate hikes, Bitcoin fell by 20%-30% in the following 4 to 6 weeks. The current context is more complex—right in the middle of the Christmas holiday, when market liquidity is already thin, any slight disturbance can amplify sell-offs several times over.

However, crises and opportunities are always twin brothers.

Once the market has fully digested the interest rate hike and the panic sentiment peaks and rebounds, it may usher in a "sell the news" counter-trend. What’s more interesting is that Japan is now raising interest rates while the Federal Reserve is in a backdrop of lowering rates, what can this policy divergence highlight in the long run? The safe-haven attributes of non-sovereign assets. At such a moment, Bitcoin's identity seems a bit different.

So what should we do now? Give some practical advice.

The first thing is to reduce leverage. There’s nothing else; high leverage at this point is like a ticking time bomb. A slight increase in volatility and liquidation will follow you like a shadow. It’s only reassuring when it’s lowered.

The second suggestion is to hold cash. Don't rush to buy the dip; keep an eye on whether Bitcoin can hold steady at key levels (like $85,000). Wait for a decrease in volume signal on the daily chart before taking action, as this will improve your chances of success significantly.

Don't forget the third long-term logic. If Japan slows down its rate hike pace, or if the Federal Reserve starts cutting interest rates again, when liquidity expectations are restored, Bitcoin usually rebounds first. This is a historical rule worth pondering.

Finally, what I want to say is: when the tide goes out, surviving is more valuable than making quick money. The market has never lacked opportunities; what it lacks is patience when the principal is still there and the chips are enough. Hold your position and wait for the wind to come again, it's that simple.