Multilayered Changes in the Investment Environment Marked by El Salvador Policy Change, BOJ Monetary Policy and Ethereum Resurgence at a Time of Structural Transformation in the Crypto Asset Market

 

Introduction

With Bitcoin hovering around $118,000 and the global crypto asset market capitalization approaching nearly $4 trillion, crypto asset market participants' attention is turning to structural changes beyond mere price fluctuations. Multiple factors are intertwining to form a new market environment, including El Salvador's policy shift, the Bank of Japan's monetary policy, and the resurgence of Ethereum.

These trends indicate that crypto assets are evolving from traditional speculative assets to an asset class that is linked to the broader financial and economic system. This paper attempts to analyze the impact of these changes on the crypto asset market from multiple perspectives.

Because the author is Japanese, there may be errors in word spelling and grammar. We apologize for any errors.

The Gap Between Ideal and Reality in El Salvador's Problems

An important change has been revealed in the bitcoin policy promoted by El Salvador's President Naives Buquere. According to a report released by the International Monetary Fund (IMF) on July 15, the country has suspended new bitcoin purchases since February 2025.

This fact clearly contradicts the “buy 1 BTC daily” policy that the Buchere administration has continuously stated since November 2022. An official letter to the IMF signed by the Governor of the Central Bank of El Salvador and the Minister of Finance clearly states that “the stock of bitcoins held by the public sector will remain unchanged,” highlighting a reality that differs from the official government statement.

Interestingly, El Salvador's Bitcoin Secretariat continues to claim that its reserves have reached approximately 6,242 BTC, and blockchain analysis firm Arcam has also confirmed that 1 BTC is being transferred daily from the wallets of major exchanges. However, the IMF report explains that this apparent increase in balances actually "reflects bitcoin consolidation from various government-owned wallets.

This means that the balances were made to appear to be increasing due to the consolidation of existing assets rather than new purchases. Such an approach offers a very important insight into the interpretation of the statistics. This case is a reminder that sometimes superficial figures alone do not reveal the truth.

Even more noteworthy is the fact that El Salvador was required to scale back its Bitcoin-related activities as a condition for receiving a $1.4 billion loan from the IMF. The report also reveals that the addresses of all hot and cold wallets held by the country have been submitted to the IMF and are under its supervision.

This indicates that international oversight of crypto asset holdings at the national level is being established. The fact that crypto assets are not subject to government interference, which has traditionally been one of the most attractive features of crypto assets, has now been highlighted as a reality that is restricted when operating at the national level.

President Buchere had previously stated publicly that he would not halt BTC purchases even if there was an agreement with the IMF, but this official document shows a different reality from this statement. This is a true illustration of the dilemma that exists between idealistic policy goals and realistic economic management.

As an example of how excessive reliance on crypto assets can be risky in a country's economic policy, this will serve as an important lesson for future policy making. At the same time, it also highlights the difficulty of striking a balance between cooperation with international organizations and independent policy management.

New Monetary Policy Developments from the Bank of Japan's Dollar Supply

The Bank of Japan's announcement on July 15, 2025, of the start of its U.S. dollar funding operations backed by collateral, which began on July 17, has caused a major stir in the market. It has implications.

According to Endgame Macro, a specialist in macroeconomic analysis, the background to this move is the hawkish monetary policy of the US Federal Reserve, whose high interest rate policy has caused the dollar to appreciate and the yen to depreciate, thereby crippling the dollar carry trade that has benefited Japanese financial institutions. The analysis shows that the dollar carry transaction, which has benefited Japanese financial institutions up to now, has become dysfunctional.

Dollar carry transactions are a method of raising funds in low-interest yen and investing them in higher-yielding dollar-denominated assets. For many years, this transaction has been an important source of revenue for Japanese financial institutions. However, the traditional model is no longer working as the Fed's rate hikes have increased the cost of raising dollars.

The BOJ's supply of dollars is seen as a “precautionary fire extinguisher” against this situation. The BOJ's decision to take action before a crisis materializes can be regarded as an appropriate response in the role of a central bank. However, the long-term impact of this measure requires careful observation.

The BOJ's move could also have mixed effects on the crypto asset market. In general, as the cost of funding the dollar increases globally, risky assets such as bitcoin will be more susceptible to downward pressure. This is because investors are increasingly risk averse and move their money into safer assets.

On the other hand, former BitMEX CEO Arthur Hayes believes that this move will ultimately lead to an increase in the global supply of liquidity. He predicts that the BOJ will increase the supply of legal tender, which will lead to a significant increase in the bitcoin price.

These conflicting views reflect the complex situation in which financial markets currently find themselves. In the short term, there is downward pressure from rising funding costs, while in the long term, there is an upside from expanding liquidity. How these two forces interact is an important focus for market participants.

In addition, the fact that the impact of central bank policies on the crypto asset market is now more clearly recognized than before indicates that crypto assets are becoming more correlated with traditional financial markets. This is evidence of the maturation of crypto assets, but also a new risk factor.

The resurgence of Ethereum, a blend of technology and promise

After a prolonged period of weakness, Ethereum (ETH) is making a dramatic comeback. A massive 25% price increase over the past seven days has pushed it past the $3,700 level. This move has greatly improved market sentiment, sweeping away the cautious mood that has persisted since the all-time highs of November 2021.

According to CoinGecko data, 88% of the community has a bullish outlook, a level not seen since the 2021 peak. This number is more than just a price increase; it is an important indicator of a long-term restoration of investor and user confidence.

Ethereum's resurgence is the result of multiple factors creating a synergistic effect. From a technical analysis perspective, the breakthrough of the long-term resistance line was an important turning point. From a fundamental perspective, network upgrades such as the recent Pectra have been well received by the market.

These upgrades have improved the functionality and efficiency of the Ethereum network, providing a more attractive platform for developers and users. The fact that technological advances are reflected in prices is evidence of healthy market development and indicates a real increase in value, not just a speculative element.

Of particular note from a macroeconomic perspective is the record inflows into physical ETFs. This is attracting renewed interest from institutional investors and is changing the traditional retail investor-centric market structure. While the entry of institutional investors will help stabilize and mature the market, it is also expected to increase price volatility due to larger inflows and outflows.

Cass Abe, a prominent crypto asset trader, notes that Ethereum's market share has entered an upward mode. According to him, “prices have been suppressed for over three years, but now they are finally starting to catch up,” and he expects the share to exceed 20% by the end of Q3.

Some traders are predicting that the price of Ethereum could reach $10,000 to $15,000 this cycle. This would represent a 3-4x increase from the previous high and is consistent with past cycle patterns. Former BitMEX CEO Arthur Hayes also predicts a significant rise for Ethereum based on his theory that the most hated coin will rise the fastest in the next cycle.

But along with these optimistic predictions, there are risks that need to be fully recognized. Ethereum typically tends to exhibit greater price volatility than Bitcoin, and while gains on rallies can be significant, losses on declines can be correspondingly large.

Since its all-time high in November 2021, Ethereum has been outperformed by competitors such as Bitcoin and Solana for an extended period of time. Its resurgence after this difficult period can be interpreted as a sign of the project's fundamental strength. However, competitors also continue to innovate, and whether Ethereum can once again establish a leading position will depend on future technological developments and market strategies.

Changing Market Structure and New Investment Environment

The crypto asset market today is entering a qualitatively different phase than in years past. Market capitalization has reached approximately $4 trillion and Bitcoin's dominance (market share) has stabilized at 61.1%, which are important indicators of the market's maturation. These figures represent a distinctly different situation from the early days of the market, when extreme volatility and speculative trading dominated.

The entry of institutional investors, the regulatory environment, and the increasing correlation with traditional financial markets indicate that crypto assets are evolving from mere speculation targets to an asset class that is perceived as part of a portfolio. This shift has inevitably affected investment strategies and risk management approaches.

As the case of El Salvador illustrates, crypto asset policies at the national level are entering an era of international scrutiny and constraint. This highlights the tension between the decentralized nature of crypto assets and the constraints of real economic management.

On the other hand, the focus on the impact of the Bank's commencement of dollar supply on the crypto asset market indicates that the impact of central bank policy on crypto asset prices is now widely recognized. This is evidence that crypto-assets, while an independent asset class, are functioning as part of the global financial system.

The resurgence of Ethereum demonstrates the existence of a sound market mechanism where technological innovation is appropriately reflected in market valuations; the fact that technological improvements such as the Pectra upgrade contributed to the price increase indicates that practicality and promise, as well as speculative factors, play an important role in price formation .

This linkage between technology and price suggests that the crypto asset market has moved beyond a simple supply-demand balance to a more complex, multi-layered valuation mechanism. A mechanism is being established in which each tier of developers, users, and investors assess value from different perspectives, which are then reflected in market prices in an integrated manner.

Risk Factors and Points to Watch

The case of El Salvador illustrates once again the magnitude of the impact of political and policy risks on crypto asset investments. In particular, the divergence between announcements by governments and public authorities and actual actions is an important risk factor for market participants. With the possibility of similar cases occurring in other countries in the future, there is an increasing need to carefully assess the veracity of policy-related information.

In addition, the strengthening of surveillance by international organizations such as the IMF imposes new restrictions on the management of crypto assets at the national level. This suggests that the “freedom” of crypto assets may be limited by political and economic realities.

As indicated by the Bank of Japan's commencement of dollar supply, changes in the global liquidity environment will have a direct impact on the crypto asset market. In particular, structural changes, such as the dysfunction of dollar carry transactions, could cause price volatility in unexpected directions.

Furthermore, while the market size is expanding due to the entry of institutional investors, the price impact of trading by large investors is also growing. Ethereum's rapid price rise also entails the risk of an equally rapid decline upon reversal.

While the resurgence of Ethereum is a welcome trend, one cannot rule out the possibility that it will once again underperform due to technical issues and the rise of competitors. In particular, scalability and fee issues have not been completely resolved, and competition from other blockchain platforms is expected to continue.

In addition, changes in the regulatory environment may limit certain functions and applications. In addition to technical superiority, legal and regulatory suitability are also important factors in long-term success.

Future Outlook and Implications for Investment Strategies

The current crypto asset market has a complexity that is difficult to address with a single approach. With factors of different nature simultaneously affecting the market, such as El Salvador's policy shift, the Bank of Japan's monetary policy, and Ethereum's technological innovations, a multifaceted analysis and flexible investment strategies are required.

The right combination of a speculative approach that focuses on short-term price fluctuations and an investment approach that looks at long-term technological innovation and diffusion has become important for both risk management and profit opportunities.

As the case of El Salvador demonstrates, verification from multiple sources is essential, as official announcements and actual conditions can differ: information must be gathered and analyzed from diverse perspectives, including reports from international organizations such as the IMF, blockchain analysis data, and market participants' analysis.

In particular, crypto-asset-related announcements by governments and companies need to be judged based on deeper analysis, not just superficial information, in order to understand the political and economic motivations behind such announcements.

The maturation of the crypto asset market is steadily progressing, but it is also creating new challenges. The market is being shaped by a complex interplay of many factors, such as tighter regulations, the entry of institutional investors, and the acceleration of technological innovation.

In addition to technological innovation, a wider range of factors are expected to play an important role in the future development of the market, including the development of the legal and political environment and the establishment of an international cooperative framework. A comprehensive understanding and proper assessment of these factors will be the foundation for a successful investment strategy.

Conclusion

The political risk presented by El Salvador's policy shift, the linkage of the Bank's dollar supply to global monetary policy, and the reflection of technological innovation in market valuation presented by the resurgence of Ethereum, these factors are interrelated and creating a new converged market environment of technology and expectations.

These changes indicate that crypto assets are evolving from an early experimental stage to a more mature asset class. However, this evolutionary process is accompanied by many challenges and uncertainties. It is important to assess the long-term development potential of crypto assets while appropriately managing a variety of risk factors, including policy risk, liquidity risk, and technology risk.

For investors and market participants, we are entering an era that requires deeper understanding and strategic thinking that goes beyond simple price forecasts and the pursuit of short-term profits. The future of the crypto asset market will be determined by many factors, including technological innovation, the regulatory environment, and global economic trends, but one thing is certain: this market is becoming an integral part of the traditional financial system.

Keeping a close eye on future developments and maintaining a cautious and strategic approach will be key to success in this rapidly changing market. Understanding the innovation and potential of crypto assets, while maintaining a realistic risk assessment, may be the most important factor in this new investment environment.

Disclaimer
This article is for informational purposes only and is not a solicitation to invest. Crypto assets are risky and you should check the latest information at your own risk.