Bitcoin Faces Macroeconomic Risk as Three Central Banks Move to Tighten Simultaneously

Three central banks are set to tighten monetary policy simultaneously for the first time since 2006. In the previous instance of such a scenario, assets purchased with borrowed funds were among the first to collapse.

The European Central Bank has already raised rates. The Federal Reserve will decide on Wednesday, and the Bank of Japan will make its decision on Friday. The macroeconomic risk for Bitcoin (BTC) stems from how this combination impacted risky assets in the past.

In 2006, a similar pattern emerged. The ECB moved on September 10, raising deposit rates to 2.50%. Futures markets currently price a roughly 90% probability of a Fed rate hike.

Back then, pressure began on May 10, and losses accumulated rapidly over the following month. This sequence was not coincidental: low-cost borrowed funds flowed into higher-yielding assets. As borrowing costs rose, the riskiest investments were liquidated first.

The market later recovered, with the S&P 500 closing up 15.79% for 2006. The real collapse came two years later from mortgage debt issues.

Bitcoin's actual macroeconomic risk position While Bitcoin did not exist in 2006, a similar test occurred afterward.

In August 2024, the Bank of Japan raised rates and the yen surged, causing the TOPIX index to drop 12% in one day. Bitcoin fell as much as 20%.

Unlike S&P 500 in the 2006 stair-step pattern, Bitcoin is more akin to emerging markets. With Japanese stocks falling 8.4% over a month, pressure has already begun for Bitcoin.

What could save Bitcoin? This month's dynamics have shifted. The yen rose 3.7% over three trading days, but Bitcoin held above $79,000, breaking the 2024 pattern.

The price had already fallen 33% over the past year and stood at $77,871 as of this writing. The market was already discounted before pressure began.

Additionally, new buyers have emerged where none existed before. U.S. spot Bitcoin ETFs saw inflows of $352 million in August, surpassing the $5.3 billion that flowed out over the previous seven months.

This capital is not borrowed in yen, so it does not automatically exit during a funding squeeze. If this buying momentum continues, daily net inflows from this week's funds could offset the shock of interest rate decisions.