Several key price catalysts likely boosted demand for BTC-spot ETFs, including easing concerns about a yen carry trade unwind and crypto-related legislative developments on Capitol Hill.
10-Year JGB Yields Influence BTC Price Trends
Notably, Bitcoin’s inverse correlation with 10-year JGBs yields remained firmly intact in the current week. Lower 10-year JGB yields weakened the yen and lifted the Nikkei, key indicators of increased yen carry trades into risk assets.
While the markets expect the BoJ to continue raising interest rates, the neutral rate remains key to investor sentiment. In December, the BoJ indicated that the neutral rate was in the range of 1% and 2.5%.
With an interest rate of 0.75%, a lower neutral rate, neither restrictive nor accommodative, would indicate a wider-than-expected US-Japan rate differential. Conversely, a higher neutral rate, potentially between 1.5% and 2.5%, would indicate aggressive rate hikes, suggesting a narrower-than-expected rate differential.
Typically, rate differentials indicate whether yen carry trades are profitable or unprofitable. The wider the rate differential, the more profitable the carry trade into risk assets. BTC’s inverse correlation with 10-year JGB yields underscored the significance of yen carry trades on market liquidity and demand for Bitcoin.