Bitcoin Surges 20% Amid Japanese Bond Market Volatility

Bitcoin’s recent surge to new all-time highs may be linked to the ongoing instability in the Japanese bond market, signaling a growing recognition of Bitcoin as a hedge against traditional financial system instability. On May 22, Bitcoin’s price reached a new peak of $112,000, before retracing to trade above $109,700 by May 26. While some attributed this rally to geopolitical developments, macroeconomic factors appear to be playing a more significant role, according to market analysts.

The Japanese bond market has been experiencing significant volatility, with the 30-year yield on Japanese bonds reaching a new all-time high of 3.185% on May 20, 2025, before retreating to 3.115% on May 23. This spike in yields indicates growing concerns around Japan’s sovereign credit outlook and fiscal sustainability. Japan’s debt-to-GDP ratio exceeds 250%, yet its 30-year bond yields were near 3.1% on May 21, similar to Germany’s 62% debt-to-GDP ratio. This situation highlights the increasing credit risk and potential for a fiscal debt doom loop, where rising yields lead to further concerns about repayment risk.

André Dragosch, head of European research at Bitwise, noted that the volatility in Japan’s bond market could be prompting institutional investors to reconsider Bitcoin’s role as a hedge against sovereign default risk. “This is now affecting other bond markets, especially the US Treasury market,” Dragosch added. The instability in Japan’s bond market raises sovereign credit risk concerns, leading to more Bitcoin adoption among traditional financial participants. Bitcoin, being an immutable asset free of counterparty risk, is seen as a hedge against sovereign risk and sovereign default.

Dragosch suggested that as perceived default risk continues to rise, yields also increase, which could drive Bitcoin’s price toward $200,000. This prediction is conditional on the continued accumulation of Bitcoin by corporations and exchange-traded fund (ETF) holders. The US spot Bitcoin ETFs are nearing the monthly inflow record of $6.49 billion from November 2024, indicating strong institutional interest in Bitcoin as a hedge against traditional financial risks.