Crypto remains on edge. That could be bad news for the stock market

New York — Crypto had a rough November. The pain is persisting into December — and that could signal trouble ahead for the stock market.Bitcoin has slumped more than 6% in the past 24 hours, sliding from just above $91,000 to roughly $85,600 as of Monday afternoon. The cryptocurrency sold off sharply late Sunday — tumbling more than $4,000 in just a few hours — as December trading kicked off in Asia.Bitcoin has seen intense swings in recent weeks as risk-off sentiment has spread through markets. In addition to a risk-averse mood, the latest freakout in the crypto world stems from concerns about the unwinding of a popular trading strategy.So, what’s going on?

The Bank of Japan has signaled it could raise interest rates at its policy meeting later this month. That is throwing a wrench into a trading strategy that relies on borrowing relatively cheap Japanese yen.

For years, a lucrative trade for global investors has been to borrow yen to buy high-yielding assets like US stocks, or in this case, cryptocurrencies.

 Interest rates in Japan had been low or at zero, making borrowing yen relatively cheap and creating a sweet opportunity for traders. 

It’s known as the “yen carry trade.”However, the Bank of Japan has signaled it could raise interest rates, in part to address stubborn inflation, continuing a recent shift away from years of ultra-low rates.

 Yields on benchmark Japanese bonds just hit their highest level since 2008, signaling expectations for higher rates.

 As rates in Japan rise, it can boost the value of the yen. That makes borrowing yen less affordable, eating into the profitability of the carry trade.

That could pressure traders to sell their bitcoin and stocks now to repay their loans and prevent the risk of further losses. In addition to a sell-off, it could lead to less cash flowing into crypto and stocks.