Bitcoin (BTC) and Nasdaq Both Got Hammered as Japanese Yen (JPY) Soared

This market action looks a lot like what happened in early August, raising the question of whether we'll see a similar outcome. Historically, the low-yielding yen has been a source of support for global asset prices, so its recent jump could be behind the latest wave of risk aversion hitting both crypto and stock markets. By Morgan Routhier.

Nasdaq and Bitcoin (BTC) suffered setbacks in recent weeks as Japanese government bond yields rose and the Japanese yen (JPY), a preferred safe haven currency, gained value. This market activity closely resembles what occurred in early August, sparking interest in whether a similar outcome is on the horizon.

Historically, the low-yielding yen has provided support for global asset prices. Its recent surge could be a factor in the latest wave of risk aversion affecting both crypto and stock markets.

Yen Rally ‘Too Far, Too Fast’

However, the yen’s bullish run might be reaching its peak. Data from the Commodity Futures Trading Commission (CFTTC), tracked by MacroMicro, reveals that bets on the yen (speculative long positions) reached a record high last week.

Usually, when traders heavily favor one side of a trade, it sets the stage for a reversal. As traders begin closing out these crowded positions, it can lead to a rapid decline in the asset's price.

This suggests that the yen’s upward climb might be slowing down, which could be beneficial for riskier assets like Bitcoin and the Nasdaq. Morgan Stanley's G10 FX Strategy team also hinted at this possibility on Friday, advising against expecting further gains in the yen.

They highlighted the "stretched" bets on the yen and strong interest from Japanese investors to buy on dips in the yen as key factors.

The team explained that many Japanese investors utilize the Nippon Individual Savings Account (NISA) to purchase foreign assets when markets become unstable, which can mitigate the pace of the yen's rise. Additionally, Japan's public pension system tends to respond to market trends by selling yen-denominated assets when the yen becomes too strong.

"Indeed, such a scenario occurred last August following a sharp appreciation of the JPY and a pronounced sell-off in equities," strategists remarked.

If history repeats itself, we could see Nasdaq and Bitcoin rebounding as traders pivot out of the yen and back into risk assets.

As of now, Bitcoin is trading at $80,945.10, showing a minor decrease of 0.41% in the past 24 hours. However, there's a significant increase in trading volume, up 50.78% to $60 billion, indicating more activity in the market.

Technical Analysis Hints at Potential Bitcoin Bounce

The Bollinger Bands (BB) indicate that Bitcoin is testing the lower band, which could suggest oversold conditions for the asset. The 20-day Exponential Moving Average (EMA), currently around $87.7K, might act as resistance if BTC attempts a rebound.

If Bitcoin breaks decisively above this EMA, it could pave the way for a move towards the upper Bollinger Band limit, which is around $99.5K.

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