Recently, after the news of Japan's interest rate hike came out, many people started worrying about its impact on the crypto space. To be honest, it's definitely worth discussing because the underlying logic chain is pretty clear.

First point—the sudden rise in the "cost" of money. You need to know that a lot of the funds flowing in the crypto market are actually borrowed. Over the past few years, Japan's interest rates have been unbelievably low, basically like giving away free money. International arbitrage pros love to borrow a ton of low-interest yen, convert it into US dollars, and then buy high-risk assets like Bitcoin and Ethereum. This strategy is called "carry trade," and they're really good at it.

But now that Japan is raising rates, the rules of the game have changed. The cost of borrowing has gone up, so those arbitragers have to recalculate: either reduce their borrowing or simply sell off some of their crypto holdings to convert back to yen and pay off their debts. With more people selling and fewer buying in the market, how could prices not fall?

The second layer of impact—the changes in the yen's exchange rate. The yen's long-term weakness has benefited a lot of people. The same US dollar could be exchanged for more yen, making it especially cost-effective to go shopping in the market. But once Japan hikes rates, the yen will likely appreciate and become more valuable. What does this mean for overseas investors? The cost of exchanging yen for US dollars to buy crypto will soar, and the currency gains they previously enjoyed might evaporate. As a result, the willingness of yen-based funds to flow into the crypto market will naturally cool off.

Finally, there's the psychological impact. Japan was the last major economy in the world sticking with negative interest rates, and this move basically marks the end of the "cheap money era." With global funding costs rising across the board, the appeal of risk assets declines—the returns from safer options like saving in banks or buying government bonds are also increasing. Investors will become more conservative, and that's not great news for the crypto market.

All in all, Japan raising interest rates is a move that affects everything. For the crypto space, it may mean facing a wave of funding pressure in the short term.