Over the weekend, the cryptocurrency market experienced a sharp decline, particularly on Sunday evening in the U.S. Bitcoin (BTC) saw its price drop to levels not witnessed since February, while Ether (ETH) fell to prices not seen since December. Bitcoin has decreased by 12% in the last 24 hours and 20% over the past week. Meanwhile, Ether has dropped 21% in the past day and 30% over the last week, erasing its gains for the year and showing a 3% loss since January 1.

The CoinDesk 20 Index, which tracks a broad range of cryptocurrencies, also saw a 12% decline over the last 24 hours. This widespread market correction has raised concerns among investors and analysts.

Bank of Japan’s Rate Hike Triggers Market Reactions

The recent downturn in the crypto market and traditional financial markets appears to be linked to the Bank of Japan’s decision to raise its benchmark interest rate last week. This move led to a surge in the yen’s value and a sharp decline in Japan’s Nikkei stock index, which fell another 6% early Monday. Over the past three sessions, the Nikkei has dropped roughly 15% and is down 20% from its peak in mid-July.

The impact of Japan’s financial policies extended to the U.S. market as well. The Nasdaq experienced a more than 5% decline in the final two sessions of last week, and Nasdaq futures were down by 2.5% on Sunday evening.

Uncertainty Surrounds Federal Reserve’s Future Actions

Adding to the market’s volatility, the U.S. Federal Reserve surprised some market participants last week. While the Fed kept rates steady, it did not signal the anticipated rate cuts for September as many had expected. This ambiguity from the Fed has left markets in a state of uncertainty.

Traders are now fully pricing in the likelihood of lower U.S. base rates in September, with a 71% chance of a 50 basis point cut and a 29% chance of a 25 basis point reduction. In the bond market, the yield on the U.S. 10-year Treasury note has fallen to 3.75% on Sunday evening, down from 4.25% a week ago. This yield is significantly lower than the current federal funds target range of 5.25%-5.50%.

The confluence of these global financial events has contributed to the steep selloff in the cryptocurrency market, reflecting the interconnected nature of today’s financial systems. Investors are now closely watching both central bank policies and market responses to gauge the future direction of crypto and traditional markets.