Double Whammy: Yen Exchange Rate Volatility + Potential Government Shutdown, Where is the Bottom of the Crypto Market?

Original | Odaily (@OdailyChina)

Author | Ethan (@ethanzhang_web3)

"Black Monday" has made a comeback.

OKX market data shows that in the early hours of January 26, BTC dropped from $88,945 to a low of $86,090, with a maximum decline of 3.21%; ETH also fell from $2,942 to $2,786, a maximum drop of 5.3%; SOL dropped from $126.99 to $117.16, a maximum decline of 7.74%. As of the evening of the 26th, the market saw a slight rebound, with BTC temporarily at $88,200, ETH at $2,915, and SOL at $123.

In stark contrast to the gloom enveloping the crypto market, gold and silver prices have repeatedly hit new all-time highs recently. COMEX data shows that the international silver price reached a high of 109.560 USD per ounce within 24 hours, with an intraday gain of 8.03%; international gold also strengthened simultaneously, rising to 5059.7 USD per ounce, a daily increase of 1.65%. Furthermore, the Japanese Yen performed strongly in the foreign exchange market. Data shows that USD/JPY touched 154, hitting a new low since November of last year, with an intraday drop of 1.11%.

On social media, the phrase "Anything But Crypto" succinctly captures the frustration of crypto investors.

Trigger 1: Volatility in the Japanese Yen Forex Market

Today, the Japanese Yen experienced a sharp fluctuation in the foreign exchange market, with the USD/JPY rate surging from 158.4 to 153.9 at one point, a gain of over 4 yen. Behind this change, the market widely speculates that Japan and the US may have already begun joint intervention in the exchange rate, or at least engaged in "rate checking," a precursor to foreign exchange intervention.

The sharp volatility in the Yen's exchange rate is not sudden. As early as January 23, the USD/JPY rate in the Tokyo forex market experienced a significant short-term surge.

The Federal Reserve's rare "rate checking" move is considered a preparatory stage for forex intervention, signaling the US government's heightened attention to the Yen's depreciation. According to a Xinhua News Agency report, rate checking typically occurs in the preliminary stage of exchange rate intervention. It is an action where financial and monetary authorities, through the central bank, inquire with banks about the current exchange rate and market conditions, representing a more direct market operation signal than verbal intervention.

In fact, since 1996, the US has only intervened in the foreign exchange market on three separate occasions, the last being in 2011 after the Great East Japan Earthquake, when it sold Yen in conjunction with G7 nations to stabilize the market. Precisely because of this, the market views this sharp Yen fluctuation as a signal of potential joint intervention by Japan and the US, an action likely an emergency response to the Yen's sharp decline. For the crypto market, this means market liquidity and risk sentiment could be significantly impacted, especially amid heightened global macroeconomic uncertainty.

Why Does a Stronger Yen Exacerbate Bitcoin's Decline?

For a long time, Japan's low-interest-rate policy has attracted global investors to the carry trade of borrowing Yen to invest in higher-yielding assets. This so-called "Yen carry trade" has been a crucial component of global market liquidity. Carry traders borrow low-interest Yen, convert it into other high-yield assets like US dollars, and invest in risk assets such as Bitcoin and stocks. However, when the Yen's exchange rate appreciates sharply, carry traders typically face pressure from rising funding costs, forcing them to unwind their positions and sell Bitcoin to repay debts.

Take August 2024 as an example. The Yen surged sharply due to the Bank of Japan's unexpected rate hike and market expectations for currency intervention. This triggered a collapse in carry trades, causing Bitcoin to plummet from $65,000 to $50,000 within a few days.

Now, with the Yen surging sharply again, similar carry trades in the market may be forced to unwind once more, further exacerbating Bitcoin price volatility.

Furthermore, those familiar with global financial markets know that the Yen is not just Japan's currency; it is also seen as a barometer of global economic risk. Whenever global market uncertainty intensifies, funds often flow into the Yen as a "safe-haven currency." This phenomenon is particularly evident during periods of global economic crisis or financial turmoil. However, the Yen's exchange rate fluctuations reflect not only the health of the Japanese economy but also changes in global risk sentiment.

This is why frequent fluctuations in the Yen's exchange rate, especially when the global macroeconomy faces uncertainty, directly affect the prices of risk assets like Bitcoin. When the Yen's exchange rate continues to fluctuate and intensify, global market risk aversion rises, and risk assets (including Bitcoin) often experience corrections, while safe-haven assets like gold and silver may see gains. Particularly against the backdrop of potential joint forex intervention by the US and Japan, a short-term correction in Bitcoin's price has become an inevitable market reaction.

It is worth noting that the negative correlation between Bitcoin and the US Dollar Index (DXY) is particularly significant. When the dollar strengthens, investors tend to shift funds to dollar-denominated assets, reducing demand for high-risk assets like Bitcoin, putting downward pressure on Bitcoin. Conversely, when the dollar weakens, Bitcoin may find opportunities for gains. If this US-Japan intervention succeeds, causing the USD/JPY rate to fall significantly, the DXY will be suppressed, providing upward support for Bitcoin, which is primarily priced in US dollars.

However, looking at it dialectically, while exchange rate intervention may push Bitcoin prices higher in the short term, if it does not change the market's fundamentals, price increases are often difficult to sustain. Past exchange rate intervention events show that government intervention is only temporary; changes in market trends depend more on the fundamentals of the global economy.

Trigger 2: Increased Probability of Another US Government Shutdown, Crypto Market Structure Bill Potentially Stalled Again

Following another deadly law enforcement shooting in Minnesota, the risk of a US government shutdown has sharply increased. According to the latest data from Polymarket, market predictions for a government shutdown have surged to 82%.

This situation was triggered by a fatal shooting incident in Minneapolis on January 24. Alex Pretti, a 37-year-old emergency room nurse, was killed during a confrontation with federal law enforcement officers. After the incident, federal and local law enforcement agencies gave conflicting accounts of what happened. The shooting itself sparked widespread public outrage and quickly became a trigger for political maneuvering.

Democratic leader Chuck Schumer explicitly stated that if the controversy over the Department of Homeland Security's (DHS) law enforcement actions is not resolved, Democrats will do everything to block the progress of the budget bill. Since the Senate requires 60 votes to pass legislation, this political deadlock will directly impact government operations. It is worth noting that the government has fallen into another shutdown "deadlock" just two months after the last 43-day shutdown.

This political predicament not only means the US government faces the threat of a shutdown but also directly impacts the regulatory progress of the crypto industry. The crypto market structure bill review meeting originally scheduled for January had to be delayed due to controversy. However, the intensification of this political battle means the bill, which should have continued to advance, may have fallen into deadlock again.

While consensus seems relatively high on the "market structure" part of the crypto bill, disputes over issues like stablecoin yields, DeFi compliance, and the SEC's regulatory tools in the tokenized securities space present significant political obstacles to the bill's progress.

As Alex Thorn, Head of Research at Galaxy Digital, pointed out, this delay highlights deep-seated disagreements between Congress and the crypto industry on several key issues, particularly regarding stablecoin yield mechanisms and DeFi-related provisions. Alex Thorn further mentioned that within just 48 hours, over 100 amendments were submitted, with stakeholders continuously discovering new points of contention at the last minute, significantly increasing the difficulty of political coordination. For the crypto market, policy uncertainty exacerbates market volatility, and a government shutdown means unpredictable regulatory policies in the short term, filling investors with uncertainty and anxiety about the future. (Recommended reading: "CLARITY Review Suddenly Delayed, Why Are Industry Divisions So Severe?")

Conclusion

In this macro game, gold has reasserted its market dominance with a "retro" posture. When the international gold price first broke through $5,000, the flow of safe-haven funds became evident. Meanwhile, Bitcoin, once hailed as "digital gold," delivered a dismal performance in this systemic shock—for the first time since October 2023, long-term holders (LTH) have exited the market on a large scale while in a state of loss, "cutting their losses." This is not just a price collapse but a collapse of trust in Bitcoin's role during a genuine financial crisis. The market at this moment is choosing not innovation, but stable safe-haven assets, as evidenced by gold's surge.

All this reveals a harsh reality: under the shadow of a financial crisis, the market tends to favor "stability" over "narrative." Gold, as a safe-haven asset, has solidified its position as a harbor during sovereign credit crises, while Bitcoin's weakness exposes its still-fragile foundation of trust within the mainstream financial system. The million-dollar bet on Polymarket about "whether gold or ETH would reach $5,000 first" has been settled. Gold's decisive victory not only marks a decisive price breakthrough but also symbolizes a "return to traditional aesthetics" in the market.

Although traditional assets have regained dominance, emerging assets are still groping in the fog for the market's genuine trust. However, market shifts are not without opportunity. The crypto market, having broken the "four-year cycle" pattern, still harbors opportunities for buying the dip.

As Placeholder VC partner Chris Burniske stated, from a buyer's perspective, BTC price levels worth watching include: around $80,000 (the November 2025 low, the current cycle's stage low); around $74,000 (the April 2025 low, formed during the tariff panic); around $70,000 (near the 2021 bull market peak); around $58,000 (near the 200-week moving average); and $50,000 and below (the lower bound of the weekly range, holding strong psychological significance; a break below could trigger "Bitcoin is dead" discussions).