Global markets are kicking off the week significantly in the red, largely due to a widespread sell-off instigated by the Bank of Japan’s recent decision to increase interest rates.
Following the bank’s announcement to elevate rates to 0.25%, Japan’s Nikkei 225 Index suffered its most severe decline since March 2020, plummeting by 5.9%. On Monday, the situation worsened as the Nikkei recorded its largest drop in history, falling by 12.6%.
Trading was interrupted multiple times not only on the Nikkei but also on Korea’s KOSPI, Turkey’s Borsa, and Robinhood, the leading retail trading platform globally.
In the cryptocurrency sector, markets faced significant pressure, with data aggregator Coinglass reporting over $1.22 billion in liquidations, primarily affecting long positions in Bitcoin (BTC) and Ethereum (ETH).
While the full impact of this market turmoil is still being assessed, there is speculation that one or more major entities within the industry may have sustained severe losses due to these market shifts.
However, in an interview with CNBC on Monday, Tom Lee from Fundstrat indicated that this recent episode is likely a “short and scary” event rather than the onset of a prolonged downturn. Lee pointed out that the Volatility Index (VIX), a widely-used measure of anticipated market volatility, could provide insight into the next moves in the near term. He believes that the uncertainty triggered by Japan’s actions shouldn’t have a significant impact on U.S. markets.
“You need to monitor the VIX. When it peaks and then begins to decline, recovery can happen just as swiftly. Much of this hinges on whether financial conditions in the U.S. begin to tighten, which would indicate a potential market freeze. However, as interest rates are falling and consumers remain relatively stable, I believe that in the aftermath, it will resemble a growth scare,” he stated.
“The 2-Year Treasury yield suggests that the Fed may be lagging behind, as it has dropped further. But it appears that much of this reaction stems from Japan’s unexpected rate hike and its ripple effects. If this is indeed the main catalyst for the turmoil, it may create turbulence in the markets, yet it doesn’t necessarily spell bad news for the U.S. economy, and I believe we can rebound from this,” he concluded.
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Disclaimer: Views expressed in The Daily Hodl are not to be considered investment advice. Investors should conduct their own research before undertaking any high-risk investments in Bitcoin, cryptocurrency, or digital assets. Please be aware that your trades and transfers are made at your own risk, and you are accountable for any losses incurred. The Daily Hodl does not endorse the purchase or sale of any cryptocurrencies or digital assets, nor does it act as an investment advisor. Note that The Daily Hodl engages in affiliate marketing.
Featured Image: Shutterstock/Olivier Le Moal
