Tokyo rate hike + Fed "fake liquidity injection": Bitcoin Christmas rally faces "ice and fire" situation

Brothers, on the morning of December 15, when Asian traders just opened the candlestick charts, Bitcoin suddenly plunged from $90,000 straight down to $85,616, a 5% drop that caused contract accounts to bleed profusely. Strangely, gold only fell by $1 at the same time, remaining steady as a mountain. Without any major defaults or negative news, the culprit behind this "silent slaughter" was hidden in a decision by the Bank of Japan.
And in the same week, the Federal Reserve was still performing "constipation-style liquidity injections"—spreading $38 billion in ten days, while reverse repurchase agreements (ONRRP) drained $13.5 billion in a single day. It’s like chugging beer while scratching your throat to induce vomiting—drinking in vain. The two major central banks are singing in harmony, pushing Bitcoin into a dead end of "ice and fire."
I. The Fed’s "split personality" game: liquidity injection is fake, supporting the market is real
First, let’s talk about the big tricks of the Fed. The government was shut down for three months, with the national debt soaring by $700 billion, and interbank market liquidity dried up to a desert. Small banks faced soaring borrowing costs, real economy loans became as hard as climbing a mountain, and wages for ordinary people shrank for three consecutive months—typical of "champagne on top, cigarette butts below."
The Fed claims to be ending QT (quantitative tightening), but its actions tell a different story. On December 22, it spread $6.8 billion in a single day, totaling $38 billion over ten days. But brothers, have you noticed? Why is the market so quiet? Because this bunch of grandsons is simultaneously injecting liquidity with the left hand and draining with the right—reverse repos (ONRRP) exceeded $13.5 billion in a single day, pulling out more than they’re putting in.
Even more sneaky is the "Bank Term Funding Program (BTFP)," which Citigroup strategists directly exposed: "This is just QE in disguise; its effect is exactly the same as directly buying government bonds." The water is indeed being released, but not a drop reaches the common people’s fields; it all flows into Wall Street’s swimming pool. The S&P has been rising steadily, gold soared 68% in a year, and on-chain stablecoins ballooned to $230 billion—ammunition is ready, but the trigger isn’t in retail hands.
This "mutual counterplay" logic is: the Fed wants to support the financial system from collapsing while controlling inflation expectations; it needs to bail out the big players but fears the flood of dollars flooding into small shops on the street. The result? Liquidity precisely irrigates the wealth of the rich, while the grassroots get nothing.
II. Why did Bitcoin "seal its throat" with a single strike after Tokyo’s bell?
Now, switch the lens back to Tokyo. On December 19, the Bank of Japan raised interest rates to 0.75%, a 30-year high. Why did this tiny 0.25 percentage point adjustment cause Bitcoin to crash?
Because the "yen arbitrage" beast was awakened.
Over the past thirty years, Japan’s zero interest rate policy has conditioned global hedge funds: borrow near-free yen → exchange for dollars → buy high-yield assets (US bonds, US stocks, Bitcoin). This "perpetual motion machine" has grown to trillions of dollars. But when the yen hikes interest rates, the game rules change instantly:
1. Borrowing costs rise: the once free yen now costs interest, squeezing arbitrage profits
2. Yen appreciation pressure: previously borrowed yen to buy dollars, now must reverse the operation—sell assets to buy yen and repay debt
3. Bitcoin becomes the primary "liquidity pool": 24-hour trading, shallow market depth, high leverage—liquidation is the first to be cut
Historical data is shocking: after the BOJ’s rate hike in July 2024, Bitcoin dropped from $65,000 to $50,000 within a week, a 23% plunge. In the past three rate hikes, the average retracement exceeded 20%. This 5% drop this time is just a starter.
Most painfully, gold only fell by $1, while Bitcoin collapsed by 5%. Where is the "digital gold"? Brothers, the times have changed.
III. Bitcoin’s "persona collapse": from rebellious youth to Wall Street puppet
After the spot ETF approval in January 2024, Bitcoin was officially integrated into Wall Street’s fold. BlackRock and Fidelity embedded Bitcoin into their portfolios, pension funds and hedge funds allocated positions based on traditional asset risk models.
This brought a fatal shift: Bitcoin transformed from a safe-haven asset into a high-risk Beta tool.
Data speaks:
• Correlation with Nasdaq: from -0.2~0.2 before 2020, skyrocketing to 0.80 in 2025
• Volatility structure: rising and falling with tech stocks, losing immunity to macro events
• Holder structure: whales reduced holdings, small and medium addresses increased, institutions accumulated during the pullback
This is not panic selling but a "generational shift." Early whales are handing over chips to a new generation of institutions. Bitcoin is shifting from a "rebellious youth fighting fiat" to a "liquidity leverage on Wall Street."
On-chain data shows that $230 billion in stablecoins are lurking on exchanges, watching closely, but no one dares to move. Because everyone knows: Bitcoin has become the most sensitive and fragile link in the global liquidity chain. The decisions made in Tokyo’s conference room can instantly determine your account balance.
IV. Christmas rally in doubt: this year may break the "must rise" myth
Since 1969, the Christmas rally (the last 5 days of the year + the first 2 days of the new year) has averaged a 1.3% increase for the S&P, and Bitcoin has long been partying. But this year, the rules might really break.
A double-whammy pattern has formed:
• On the Fed side: "fake liquidity" continues, policy signals are chaotic. As Futu statistics show, when the Fed is fighting itself, historical rules often fail
• On the Japanese side: hints of continued moderate hikes in 2026, with pressure to close out arbitrage trades like a Damocles sword hanging overhead, possibly triggering another 15% correction
Two scenarios:
Gentle: The Fed buys $40 billion in government bonds monthly, just filling the liquidity gap. Risk assets sip porridge, Bitcoin slowly climbs to $93,000, but don’t expect a celebration.
Aggressive: The Fed floods $60 billion+ monthly, flooding the gold mountain. Wall Street pops champagne, Bitcoin follows stocks to new highs. But the cost is exploding inflation and a credibility crisis, with Japan’s rate hikes having even greater destructive power.
Crypto insiders’ view: likely to follow a "sick patient" pattern. The fear and greed index is in the extreme fear zone at 25, market sentiment is like a village with the flu, trembling under the blankets. $89,000 is a key resistance; holding above could see $93,000. But if it falls below, with Japan’s next rate hike, even $80,000 might not hold.
V. Practical guide for brothers
Short-term (late December - early January):
• Light positions for the holidays: Christmas rally uncertainty is high, keep contract positions below 20%
• Watch dual indicators: Fed reverse repo balance + bank reserve ratio, a decline in the former and a rise in the latter signals gentle QE4
• Set stop-losses: if $89,000 doesn’t hold, cut at $85,000; if it stabilizes, small positions can chase, target $93,000
Mid-term (Q1 2026):
• Hedge against BOJ risk: monitor BOJ meetings (March, June), reduce positions one week before rate hikes
• Stablecoin movements: $230 billion stablecoins are "dry tinder," wait for SEC new officials or Biden’s favorable policies to ignite this "Mars"
• Correlation traps: don’t treat Bitcoin as a safe haven anymore; it’s tied to Nasdaq—if US stocks plunge, it won’t escape
Long-term:
• QE4 will inevitably land: under recession pressure, the Fed will have to buy government bonds personally—just a matter of time. This is the ultimate good news for Bitcoin, but the path will be extremely tortuous.
Conclusion: Survive in the chaos of switching scripts
Brothers, Bitcoin hasn’t done anything wrong; it’s just paying the price during its "institutionalization" process. In the past, we only needed to watch on-chain data; now, we must also keep an eye on Tokyo, Washington, and Wall Street.
This Christmas, instead of betting on the market’s rise or fall, think clearly: when the Fed’s fire hoses and pumps are running simultaneously, and Tokyo’s rate hikes can instantly evaporate your wealth, are your assets in a swimming pool or in a desert?
History doesn’t repeat simply, but it often echoes eerily. QE in 2008 birthed Bitcoin; QE3 in 2020 ignited the institutional bull market. Today’s "constipation-style liquidity injection" is ugly but clear in direction—the underlying logic of the financial system has collapsed, and traditional rules are shattering. Amid the chaos of switching scripts, some stubborn things will be re-priced.
Only after coming down can we see the next cycle.
Brothers, when do you think the next BOJ rate hike will be? Will Bitcoin fall below $80,000? Leave your judgment in the comments! If you find this analysis reliable, like and share to let more brothers understand this grand chess game! To get real-time on-chain data monitoring and BOJ rate hike alerts, remember to follow Crypto Digger and leave a message. We’ll keep digging into the secrets of global central banks in the next episode!