Analysis: Yen Strength May Lead to Negative Feedback Loop for Global Risk Assets, Crypto Traders Need to Remain Cautious

Deep Tide TechFlow News, August 19th, according to Coindesk, the yen to dollar exchange rate has risen by 2.4% since last Thursday, reaching 145 yen to 1 dollar, showing a preference for safe-haven currencies. Similar yen strength in early August had triggered arbitrage unwinding, leading to significant volatility in risk assets including Bitcoin. The price of Bitcoin fell from around $70,000 to $50,000 in the eight days before August 5th, then rebounded to $60,000 against the dollar-yen.

Famous trader Simon Ree and Goldman Sachs' crypto trading head Andrei Kazantsev both pointed out that the yen's strength could lead to a negative feedback loop for global risk assets. According to ING's analysis, the yen's rebound could alter market behavior, increasing the willingness to buy when the yen weakens, thereby increasing the risk of yen strength.

In the coming weeks, as the Federal Reserve's mid-September interest rate decision meeting approaches, arbitrage unwinding may continue. Arnim Holzer, global macro strategist at Easterly EAB Risk Solutions, stated that if the Fed cuts rates by 50 basis points, the market may rise first and then fall, as concerns about the economy and yen strength could trigger arbitrage unwinding again.