Bitcoin has regained some of its losses from Sunday's sharp sell-off that caught traders and market participants off guard, where the asset sunk to its lowest point in almost six months.
The world’s largest crypto fell 20% from Saturday through Monday, extending a 6% dip on Friday that saw Bitcoin drop to as low as $49,200. It has since climbed to $55,600, CoinGecko data shows.
While the broader market sank amid fears of a looming recession in the U.S., some analysts forecast Bitcoin's price remaining steady as it stares down hurdles for the remainder of the year.
Bitcoin faces fresh headwinds this week, including uncertainty around the next U.S. president, tensions in the Middle East, and Japan’s rate hikes—its first in 17 years.
The last of those sent shockwaves across global markets on Monday after traders began to grasp the Bank of Japan's decision to raise its benchmark interest rate to 0.25%, up from its previous range of 0% to 0.1% at the end of last month.
That's the highest level since 2008, with the country taking its first steps away from its decade-long policy of near-zero interest rates. The bank’s decision has had a profound impact on the so-called carry trade between the Japanese yen and other currencies.
The popular trade involves borrowing the yen at historically low interest rates to invest in higher-yielding assets elsewhere. Now, as interest rates trend higher, some are predicting further instability before normal market behavior resumes.
“For decades, investors have relied on the low interest rates in Japan to borrow the underlying currency and buy higher-yielding currencies," Jonathan de Wet, chief investment officer at digital asset trading firm Zerocap, told Decrypt. “This trade has become so pervasive that the entire financial system is somewhat exposed.”
The unwinding of these carry trades has spilled over into the crypto market, further exacerbating buyers as they balk at shifting market dynamics. Cryptocurrencies, viewed as high-risk assets, are particularly vulnerable to broader market movements despite some calling the asset class a hedge against such moves.
Adding to those pressures, the size of the yen carry trades is enormous, estimated to exceed $20 trillion, indicating the unwinding process is only in its early stages, de Wet said.
Despite the current downturn, there is an expectation of strong buying interest if prices fall below key levels, including Bitcoin’s $50,000 price tag, on full display Monday.
The market may “take heed” of the presidential odds of former President Donald Trump being a strong buyer of Bitcoin as part of the strategic reserve proposals floating around.
“If this happens, we may see the hedge narrative begin to take hold, and along with it, gold and Bitcoin,” de Wet said.