Crypto's Crash Wasn't About Crypto—It Was About Yen

"This wasn't a crypto crisis—it was a TradFi spillover," declared Fabio Frontini, CEO of Abraxas Capital Management, at Consensus Hong Kong 2026. As bitcoin tumbled nearly 20% last week, the knee-jerk reaction was to blame crypto-specific factors. But the real culprit was hiding in plain sight: Japanese yen.

The selloff that spooked crypto investors had little to do with exchange hacks, regulatory crackdowns, or project failures. Instead, it was driven by the unwinding of a decades-old Wall Street strategy that suddenly turned toxic.

When Cheap Money Gets Expensive

The mechanics are deceptively simple. Investors borrow Japanese yen at rock-bottom interest rates, convert it to other currencies, then deploy that capital into higher-yielding assets—including bitcoin, ether, gold, and silver.

"What does that mean? People borrow currencies that have cheap interest rates, and they use it to put on carry trades," explained Thomas Restout, group CEO of B2C2. It's a strategy that works beautifully until it doesn't.

When yen rates rose and the currency strengthened, borrowers faced a double squeeze. They needed to buy back yen to repay loans while simultaneously dealing with higher borrowing costs. The result? Forced selling across all risk assets.

But here's the kicker: rising volatility triggered steeper margin requirements across markets. "In metals, it went from 11% margin requirements to 16%," Restout noted. Suddenly, investors needed more collateral to maintain the same positions, forcing further liquidations.

The ETF Reality Check

So are institutions fleeing crypto en masse? The numbers tell a more nuanced story.

Bitcoin ETFs peaked at roughly $150 billion in assets. Today, they hold around $100 billion—a significant drop, but hardly a wholesale exodus. Net outflows since October total about $12 billion, which Restout characterized as "significant, but modest relative to total assets."

"If anything, it means that the money is changing hands," he suggested, pointing to rotation rather than capitulation. Some investors are selling, others are buying—classic market behavior during volatility.

This resilience is particularly striking given crypto's reputation for boom-bust cycles. The fact that $100 billion remains parked in bitcoin ETFs suggests institutional interest hasn't evaporated—it's just getting more selective.

The Regulatory Tailwind

While markets were gyrating, a quieter revolution was unfolding in the regulatory sphere. Emma Lovett, credit lead for Market DLT at J.P. Morgan, described 2025 as an "inflection point" for crypto adoption.

"What we started to see in 2025... is the introduction of using public chains and stable coins for the settlement of traditional securities," she explained. This shift from private, permissioned blockchains to public infrastructure represents a fundamental change in how Wall Street views crypto.

The more permissive U.S. regulatory environment has accelerated experimentation, pushing traditional finance toward the very public blockchains it once shunned. It's a convergence that makes crypto more legitimate—and more vulnerable to traditional market forces.