Japan's Policy U-Turn Boosts Bitcoin Above $57K, but Investors Favour Ethereum

On August 7, Japan's Deputy Governor of the Bank of Japan, Shinichi Uchida, announced a significant policy shift: the central bank will maintain its current level of monetary easing and not raise interest rates. This decision comes in response to recent market instability, following Japan’s Nikkei index experiencing its worst drop since 1987.

Uchida noted that the decision to keep monetary policy unchanged was influenced by global market turbulence and a weakening US economy. He explained that recent currency fluctuations and instability in Japan’s domestic stock market necessitate a cautious approach. Despite this, UBS reported that the Bank of Japan faces pressure to respond to market reactions, with economist Robin Brooks criticising the policy as ineffective and potentially causing disorderly yen movements.

Bitcoin's Response

Bitcoin (BTC) has reacted positively to Japan’s policy decision, rising by approximately 2% in the last 24 hours, according to CoinGecko data. Despite this uptick, BTC remains 14% down on a weekly basis. Technical indicators from IntoTheBlock suggest bullish signals for Bitcoin in the exchange and derivatives markets. Analyst Ash Crypto predicts a potential supply shock for Bitcoin over the next 6-8 months, which could drive up its price.

Ethereum's Growing Appeal

While Bitcoin benefits from Japan's policy change, Ethereum (ETH) has seen a surge in investor interest. CoinShares’ Head of Research, James Butterfill, reported a shift in market sentiment. Since the recent market downturn, investors have been moving away from Bitcoin and favouring Ethereum. Weekly data shows Bitcoin experiencing an outflow of $165 million, whereas Ethereum has seen an inflow of $175.5 million. This shift has led to a net positive flow of $8 million for the week, despite a month-to-date net outflow of $377 million across the broader market.

The increased interest in Ethereum is also reflected in the rise of ETF fund inflows, highlighting a growing preference for Ethereum over Bitcoin amid recent market conditions.

Market Outlook

As the crypto market continues to respond to broader economic signals, including potential rate cuts by the Federal Reserve, both Bitcoin and Ethereum are experiencing significant shifts in investor behaviour. Japan's policy decision has offered temporary relief to Bitcoin, but Ethereum's recent performance suggests it is currently the more attractive option for many investors. The ongoing market dynamics will likely keep both cryptocurrencies under scrutiny as investors navigate evolving economic conditions.