Bitcoin's impending "death cross" could trap bears as the Bank of Japan eases interest rate concerns

This ominous-sounding technical price pattern could once again trap bears on the wrong side of the market, as the Bank of Japan plays down the likelihood of a near-term rate hike.

Shunichi Uchida of the Bank of Japan played down concerns about a rate hike amid market volatility. Following Uchida's comments, the yen weakened and BTC and stock index futures rose. The renewed risk appetite hints at the possibility of a Bitcoin death cross bear trap.

Bitcoin's (BTC) impending death cross, a bearish technical graph, could once again become a contrarian indicator, signaling a new round of bullish price action, as it did in September 2023. That's because earlier on Wednesday, Shunichi Uchida, the powerful governor of the Bank of Japan (BOJ), said the central bank would not raise borrowing costs when markets were unstable, weakening the case for continuing to unwind the "yen carry trade" and risk aversion to risky assets, including bitcoin. "The current level of monetary easing needs to be maintained as we are seeing strong volatility in domestic and international financial markets," Uchida said in a speech to business leaders in Hakodate, Hokkaido.

All else being equal, the latest comments from the Bank of Japan mean that downward pressure on cryptocurrencies is limited even as a death cross approaches. A death cross is characterized by the cryptocurrency's 50-day simple moving average (SMA) falling below the key 200-day simple moving average. Following Uchida's comments, bitcoin traded firmer, briefly breaking through the $57,300 mark, while the Japanese yen (JPY) depreciated against the U.S. dollar (USD) from 145 to 148. Japan's Nikkei stock average rose 4 percent, indicating a reset in risk, while futures linked to the S&P 500 rose 0.8 percent. Global Macro, a pseudonym market watcher, said on X: "The BOJ has issued a 'yen put option' and the Nikkei will push the Nasdaq and S&P back to their pre-sale levels."

The yen carry trade involves borrowing at low interest rates in yen and investing in higher-yielding currencies (such as the Mexican peso) and risky assets. The strategy has become quite popular in recent years as the Bank of Japan has kept interest rates at zero while other central banks, including the Fed, have quickly raised borrowing costs to fight inflation. On Wednesday, however, the Bank of Japan raised interest rates, abandoning its ultra-loose monetary policy for the first time in 17 years. This hawkish move triggered the unwinding of the carry trade, leading to widespread risk aversion. BTC fell from $66,000 to $50,000 in five days. Andy Constan, CEO of Damped Spring Advisors, said in a detailed yen carry trade explanation on X: "By July 16, the stock market and many other risky asset markets reached their peak. For whatever reason, these asset markets began to sell off. As the selling continued, participants who had recently entered the yen carry trade saw their assets falling, and it became clear that this almost always undid the driving force of the trade. But worse, the yen began to slowly move higher. That started the unwinding of the deal."

Constan added: "The unwinding of this trade led to flexible price flows to buy yen and sell risky assets. The selling of risky assets also affected a large group of leveraged investors who had no exposure to yen and thus received margin calls."