Bitcoin's Impending 'Death Cross' May Trap Bears as Bank of Japan Eases Rate Concerns

The ominous-sounding technical price pattern could again trap bears on the wrong side of the market as the Bank of Japan plays down chance of a near-term interest rate hike.

Bitcoin price showed resilience on Wednesday after the Bank of Japan (BOJ) Governor Shinichi Uchida played down the possibility of a near-term interest rate hike.

The development comes amid technical cues suggesting a potential death cross on shorter time frames for BTC/USD, which could herald further downside pressure on the cryptocurrency. However, the BOJ's stance may help cushion any downturn.

Bitcoin price rose above $57,300 early Wednesday after Uchida said in a speech to business leaders in Hakodate, Hokkaido, that the central bank would refrain from raising borrowing costs while markets are volatile.

"As we're seeing sharp volatility in domestic and overseas financial markets, it's necessary to maintain current levels of monetary easing for the time being," Uchida said.

Other things being equal, the BOJ's latest comments should limit any downside in the cryptocurrency even as the death cross, defined by the cryptocurrency's 50-day simple moving average (SMA) dropping below the pivotal 200-day SMA, looms.

Bitcoin price stood to gain from the BOJ's stance on interest rates, especially after the central bank raised rates last week for the first time in 17 years, sparking an unwinding of "yen carry trades" and broad-based risk aversion.

The yen carry trade strategy involves taking out cheap yen-denominated loans and investing in high-yielding currencies, such as the Mexican peso, or risk assets, such as bitcoin. The carry trade has been popular in recent years as the Bank of Japan kept interest rates at zero while others, including the Federal Reserve, raised borrowing costs rapidly to combat inflation.

However, last Wednesday, the Japanese central bank raised rates, ditching the ultra-easy monetary policy for the first time in 17 years. The hawkish move triggered an unwinding of carry trades, causing broad-based risk aversion.

BTC crashed from $66,000 to $50,000 in five days to Monday.

"By July 16th, the equity markets and many other risky asset markets peaked. For whatever reason, these asset markets began to sell off. As the sell-off continued, recent entrants into the YCT [yen carry trade] saw their assets falling, and to be clear, that is almost always the driver of unwinds. But worse, the Yen began rallying slowly. That began the unwind," Andy Constan, CEO of Damped Spring Advisors, said in a detailed yen carry trade explainer on X.

"The unwind of the trade results in inelastic price moving flow to buy Yen and sell risky assets. The sale of the risky asset also impacts the much bigger set of levered investors who don't have any yen exposure at all and they get margin called as well," Constan added.

The Japanese yen rose to 148 per U.S. dollar (USD) from 145 per USD, while the Japanese stock index Nikkei rose 4%, signaling a risk reset, and futures tied to the S&P 500 rose 0.8%.

"The BOJ struck the 'Yen put,' and the Nikkei will be driving the Nasdaq and S&P to their pre-selloff levels," pseudonymous market observer Global Macro said on X.

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