This morning, Bank of Japan Governor Kazuo Ueda sent the strongest hawkish signal for interest rate hikes, with the probability of a rate increase in December rising to 70% and in January next year to 90%. This triggered a massive market shock, with pre-market U.S. stock futures plunging by 1%, and Bitcoin falling below the 90,000 support level, cascading down to 85,500 in an instant.

In response, I can only say that what is meant to happen will eventually happen. Previously, I mentioned to everyone that the imminent interest rate hike by Japan would inevitably lead to declines in U.S. stocks and the cryptocurrency market. Many did not take it seriously, so it is natural that they could not foresee today's situation. The impact of this news shock is merely an appetizer; the subsequent panic selling will likely continue for a longer time.

First, let me explain why the impact of the Bank of Japan's interest rate hike is so significant. For a long time, the low interest rates of the yen have made it the most popular borrowing product for global capital. Borrowing yen to exchange for dollars and investing in U.S. stocks has been a choice for many hedge funds and institutions. The most important component of the funding structure in U.S. stocks is the borrowed yen. However, once the Bank of Japan raises interest rates, the cost of borrowing yen increases, which means that those who borrowed yen will need to repay it, leading to a continuous outflow of funds from U.S. stocks. Bitcoin, as a leading indicator of U.S. stocks, will experience an even greater decline.

This is the power of the Bank of Japan's interest rate hike. Some may argue that the rate hike has not yet materialized and that this is just an expectation. Once the rate hike is implemented, the negative sentiment could turn positive. I want everyone to understand one thing: the interest rate hikes by the Bank of Japan and the Federal Reserve are fundamentally different. The Federal Reserve's rate hikes and cuts are cyclical, allowing capital to be restructured for hedging. However, the yen's interest rate hike is entirely different. The long-term low interest rates of the yen have trapped a large amount of capital, which cannot be restructured in the short term. Moreover, the yen's interest rate hike is not cyclical but a one-time action. Essentially, the yen will still maintain low interest rates in the long term, which means that once the yen is raised, capital is forced to repay the yen without any cyclical space, and thus there is no room for restructuring investment portfolios.

This will lead to even more serious subsequent consequences. If the Bank of Japan raises interest rates in December, how will the Federal Reserve respond? The exchange rate difference between the dollar and the yen will widen, and the outflow of funds from U.S. stocks will only accelerate. To make it easier to understand, let me give an example: suppose it originally took 500 dollars to repay a loan of 10,000 yen; now it requires 1,000 dollars to repay the same loan.

So what should the Federal Reserve do? If it wants to protect U.S. stock funds from flowing out, it must maintain a stable exchange rate between the dollar and the yen. Therefore, if the Bank of Japan raises interest rates, the Federal Reserve will also have to raise rates passively. Of course, we all know that the likelihood of the Federal Reserve raising rates is low. What about a rate cut in December? A rate cut would only widen the already expanded exchange rate difference. So, does the probability of the Federal Reserve cutting rates in December decrease further? For the cryptocurrency market, losing the favorable conditions of a rate cut in December will further weaken market confidence, leading to a new round of declines.

This is what I mentioned earlier: the news of the Bank of Japan's interest rate hike is just an appetizer, and the subsequent impact will be ongoing.

Having interpreted the news, let's return to the current Bitcoin market. The price is currently maintaining a weak sideways consolidation around the 86,000 level. Clearly, after a rapid decline, the market needs to adjust and repair before choosing a further direction. First, let me clarify that the logic of a bear market remains unchanged; the downward trend is the main theme. We just need to predict the upcoming downward rhythm for suitable short entry points.

This rhythm can be divided into two scenarios: a sharp decline and a wide range of fluctuations.

Scenario 1: If the market experiences a sharp decline, today's Bitcoin recovery will not exceed 88,000. From this position downward, it will start to decline all the way, first breaking 85,000, then testing 83,500, followed by 80,600, ultimately reaching 74,000 to form a box-like fluctuation.

Scenario 2: If it breaks 88,000, it will turn into a large box-like fluctuation. In the short term, the market will continue to test 93,500, but that’s all. The market will consolidate above 93,000 for a long time, and after the consolidation, it will break below the 90,000 round number, initiating a new round of bear market decline.

Through these two scenarios, we can clarify today's operational strategy. Scenario 2 cannot be confirmed in the short term, but Scenario 1 can begin to be acted upon. Since 88,000 cannot be broken, today we will start shorting between 87,000 and 87,500. If it breaks below 85,000, we will continue to hold. At 83,500, we will choose to reduce our position and wait for the market to break below 83,000 to continue adding to our short position, targeting 81,000.

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