Why Is Ethereum Falling After Bank of Japan Rate Hikes?

TL;DR

Ethereum has repeatedly put in a capitulation wick roughly two weeks after the Bank of Japan raises rates, with drops in April, August and February following hikes in March, July and January. The pattern usually continues with a two-week relief bounce, then another leg down toward a higher low. ETH trades near $2,700, and its bigger problem is that ETH/BTC has not bottomed.

Transcript

hey everyone and thanks for jumping back into the cryptoverse today we're going to talk about ethereum dubious speculation if you guys like the content make sure you subscribe to the channel give the video a thumbs up and also check out the sale on into the cryptoverse premium at into the crypto.com let's go ahead and jump in so eth is currently tr... Read More

Key Insights

• Ethereum's recent capitulation wicks have arrived roughly two weeks after Bank of Japan rate hikes. ETH capitulated in April, August and February, and Japan raised rates in March, July and January, a lineup the presenter says has been discussed for eight or nine months.
• The narrative linking BoJ hikes to crypto selloffs is the carry trade unwind. Raising rates in Japan theoretically unwinds part of the carry trade, which hits risk assets, and the effect shows up in markets a couple of weeks later rather than immediately.
• The post-capitulation pattern is a bounce followed by another drop. After the capitulation wick the market generally trends higher for a couple of weeks as a knee-jerk reaction, then falls again to establish a higher low relative to the wick, a sequence visible multiple times on the chart.
• The Bank of Japan's stated target is a 1% policy rate by January 2026. Rates currently sit at half a percent, so reaching 1% requires roughly two more 25 basis point hikes over about 11 months, which sets the timetable for any further carry trade unwind.
• Most analysts expect the next Japanese rate hike in July, matching last year's timing. However, some former BoJ members have said that if the economy and inflation keep picking up, a hike could come sooner than July, which would compress the recovery window for ETH.
• Japanese inflation just came in at 4%, up from 3.6% the previous month. Because the Bank of Japan did not raise rates during 2022 and 2023 while the US was hiking, Japan is lagging other countries and is now seeing higher inflation than many of them.
• The Japanese 10-year yield is going parabolic while the US 10-year yield has been declining for a few weeks. Large upward moves in 10-year yields tend to create headwinds for risk assets, so the Japanese bond move is the signal to watch for another hike.
• ETH's biggest problem is that ETH/BTC has not turned up. It repeatedly looks ready to rally and then keeps falling, and last cycle ETH/BTC bottomed around the time quantitative tightening ended and QE began, suggesting the end of QT is what ETH needs.
• Seasonality for post-election years differs from the recent norm. Averaging prior post-election years, the S&P 500 can show weakness in March and then pick up in April, while Bitcoin's Q1 2017 gain of 9% preceded much better Q2 and Q3 performance.
• Front-running altcoins has not worked over the last three years. Despite persistent calls to rotate into alts ahead of Bitcoin, Bitcoin dominance never actually stopped going higher, and the presenter suggests crowded speculation may even keep monetary policy tighter for longer.

Questions & Answers

Q: Why does Ethereum drop about two weeks after a Bank of Japan rate hike?

The proposed mechanism is the carry trade. When the Bank of Japan raises rates, it theoretically unwinds some of the carry trade, and that unwind hits risk assets including crypto. The effect is not instant: it tends to show up as a capitulation wick roughly two weeks later. The presenter points to ETH capitulations in April, August and February following Japanese hikes in March, July and January, a pattern he says has been tracked for eight or nine months because it became obvious after the first occurrence. He is explicit that he could be right about the drops for the wrong reasons.

Q: What pattern does Ethereum follow after a capitulation wick?

The chart pattern he describes has three parts. First the capitulation wick itself. Then a knee-jerk reaction where the market generally trends higher for a couple of weeks. Then another drop that comes back down to try to find a higher low compared with the wick, which may or may not be a macro higher low. He notes this sequence repeated several times on the ETH chart. Applying it to the present, he would not be surprised if ETH/USD falls back again in the coming weeks, while stressing it is all dubious speculation and he cannot say for sure.

Q: When is the Bank of Japan expected to raise rates next?

Most analysts currently point to July as the most likely outcome, which matches the timing of last year's hike. However, the presenter flags a risk to that consensus: some former Bank of Japan members have said that if the economy and inflation keep picking up the way they are, a hike might have to come sooner than July. Japan does not have a strong recent history of raising rates in consecutive meetings, having just hiked in January, but that does not rule it out. The stated goal is 1% by January 2026 from half a percent now, so roughly two more 25 basis point hikes are needed in about 11 months.

Q: What is Japan's inflation rate and why does it matter for crypto?

Japanese inflation just came in at 4% last month, up from 3.6% the month before. It matters because inflation is the input that drives Bank of Japan rate decisions, and each hike is the event the presenter links to Ethereum capitulation wicks about two weeks later. Japan is in this position partly because it did not raise rates while many other countries were hiking through 2022 and 2023. Overlaying US rates on the same chart shows the US raising while Japan did nothing, so Japan is lagging and inflation there is running higher than in many other countries now.

Q: What is the Japanese 10-year yield doing and why is that a warning sign?

The Japanese 10-year yield is described as basically going parabolic right now, in contrast to the US 10-year yield, which has been declining for a few weeks. The reason this matters is a relationship the presenter has covered extensively for the US: whenever the 10-year yield makes a big move up, risk assets tend to face headwinds. A parabolic move in the Japanese long bond therefore raises the question of whether another Bank of Japan rate hike could land before Ethereum has had time to recover from its current drop, which would stack a second shock on an unrecovered market.

Q: How does Bitcoin seasonality affect the Ethereum outlook?

The logic runs downhill: if Bitcoin does well, ETH/USD generally does okay, and if Bitcoin does not, ETH generally does not either. Bitcoin in turn is treated as highly correlated to stocks, which are trading just below 6,100. Looking at the average of prior post-election years for the S&P 500, there can be weakness in March followed by a pickup in April. On quarterly Bitcoin returns, Q1 2017 was only up 9% and Q1 2025 is up 4%, and 2017 saw much better Q2 and Q3, so post-election seasonality may differ from the recent pattern of strong Q1s in 2023 and 2024.

Q: Why is ETH/BTC considered Ethereum's biggest problem?

ETH is described as stuck in traffic on struggle street specifically because ETH/BTC has not picked back up. It repeatedly looks to many people like it is about to turn up, and then it does not, it just keeps going down. The historical reference point is that last cycle ETH/BTC bottomed around the time quantitative tightening ended and quantitative easing began. Until that monetary shift happens again, the presenter expects continued relative weakness from ETH versus Bitcoin, and he thinks ETH/USD would look a lot stronger once ETH/BTC finally bottoms.

Q: Does front-running the altcoin cycle actually work?

Based on the last three years, no. The presenter notes that essentially everything said about altcoins over that period has been about front running the alts and favoring them over Bitcoin, yet in reality Bitcoin dominance never actually stopped going higher. He goes further and suggests, without fully believing it himself, that crowds going all-in on speculative assets could contribute to monetary policy staying tighter for longer, since strong risk asset performance encourages spending and a stronger economy. He acknowledges the economy is the main driver, but notes risk asset performance is partially related to it.

Summary & Key Takeaways

• Ethereum trades around $2,700 and has shown a recurring capitulation wick about two weeks after Bank of Japan rate hikes. ETH capitulated in April, August and February, while Japan raised rates in March, July and January. The proposed mechanism is that a BoJ hike unwinds part of the carry trade, which pressures risk assets a couple of weeks later.

• After each capitulation the chart tends to show a knee-jerk rally lasting a couple of weeks, followed by another drop that seeks a higher low relative to the wick. Applying that template now suggests ETH/USD could fall back again in the coming weeks, though the presenter repeatedly frames the whole idea as dubious speculation rather than a forecast.

• The next BoJ move matters because the stated goal is a 1% policy rate by January 2026, from half a percent today, implying a couple more 25 basis point hikes over roughly 11 months. Most analysts expect July, but former BoJ members have suggested a sooner hike if inflation keeps rising. Japanese inflation just printed 4%, up from 3.6%.

• Japanese 10-year yields are described as going parabolic, while the US 10-year yield has been declining for a few weeks. Rising long yields historically create headwinds for risk assets, so the open question is whether Japan hikes again before ETH recovers from its current drop.

• Seasonality and Bitcoin correlation frame the downside case. Post-election years often show March weakness in the S&P 500 followed by an April pickup, and Bitcoin is up 4% in Q1 2025 versus 9% in Q1 2017, a year when Q2 and Q3 were much stronger. Stocks sit just below 6,100.

• ETH's core weakness is ETH/BTC, which keeps failing to turn up. Last cycle ETH/BTC bottomed around the time quantitative tightening ended and QE began, so the presenter treats the end of QT as the likely trigger for ETH/USD to look meaningfully stronger. Until then, relative weakness versus Bitcoin can persist.