The Bank of Japan signals further interest rate hikes, which will have multiple impacts on the cryptocurrency market from dimensions such as capital flow, market sentiment, and yen-denominated crypto assets. Overall, the effect leans towards short-term suppression and structural differentiation:

1. Short-term pressure on capital
Raising interest rates will increase the risk-free yield of yen assets, potentially causing some of the yen arbitrage funds that previously flowed into the crypto market to flow back into domestic Japanese bonds, deposits, and other fixed-income assets. This will lead to a temporary contraction in incremental funds for the crypto market, with a more pronounced liquidity suppression on small and medium-sized altcoins.

2. Rebalancing risk aversion and risk appetite
Interest rate hikes are essentially a tightening monetary policy, which will reinforce market expectations of reduced global liquidity. As high-risk assets, cryptocurrencies may be sold off by investors in the short term to shift into safer assets. However, if rate hikes are interpreted by the market as a sign of Japan's economic recovery, long-term risk appetite could recover, offsetting this bearish sentiment. Major cryptocurrencies like Bitcoin will show significantly stronger resilience compared to niche coins.

3. Increased volatility of yen-denominated crypto assets
Rising interest rates in Japan will strengthen the yen exchange rate, and the prices of yen-denominated cryptocurrencies will be directly affected by exchange rate fluctuations—even if the dollar prices of cryptocurrencies remain unchanged, yen-denominated assets will decline. This may influence Japanese domestic crypto investors' trading behavior and could trigger sell-offs of yen-denominated trading pairs.

4. Structural adjustments in institutional deployment
Funding costs for Japanese domestic crypto financial institutions (such as exchanges and asset management companies) will rise with interest rate hikes, potentially slowing the pace of their deployment in crypto derivatives and wealth management products. However, in the long term, if rate hikes promote a more mature Japanese financial market, institutional demand for compliant crypto products may gradually increase, benefiting crypto projects in the compliant track.

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