Analysis: The strengthening of the yen could lead to a negative feedback loop for global risk assets, and cryptocurrency traders need to remain cautious

News on August 19th, the yen-to-dollar exchange rate has risen by 2.4% since last Thursday, reaching 145 yen to 1 dollar, showing a preference for safe-haven currencies. A similar strong yen in early August triggered the unwinding of arbitrage trades, causing significant fluctuations in risk assets including Bitcoin. The price of Bitcoin fell from about $70,000 to $50,000 in the eight days before August 5th and then rebounded back to $60,000 with the dollar-yen bounce-back. Renowned trader Simon Ree and Goldman Sachs' head of crypto trading Andrei Kazantsev both pointed out that a strong yen could lead to a negative feedback loop for global risk assets. According to ING's analysis, the yen's rebound may change market behavior and increase willingness to buy when the yen weakens thereby increasing risks when it strengthens. In coming weeks as we approach mid-September Fed interest rate decision meeting , unwinding of arbitrage trades might continue . Arnim Holzer , Global Macro Strategist at Easterly EAB Risk Solutions said if Federal Reserve cuts rates by 50 basis points , markets might rise first then fall because concerns over economy and strength of Yen will trigger unwinding of arbitrage trades again.