- Arthur Hayes outlines how the yen could ignite the next crypto rally.
- The BitMEX co-founder sketched out events that would trigger âunlimited spigot of dollar liquidity.â
Japanâs weak yen could ignite a crypto rally that sends Bitcoin to new heights.
In a 3,800-word essay, BitMEX co-founder Arthur Hayes said the US government is poised to print dollars to prop up the yen.
âCrypto booms, as there is more dollar and yuan liquidity floating in the system,â Hayes wrote.
âBitcoin is the best-performing asset in the face of global fiat debasement.â
âLose-lose situationâ
Hayes drew inspiration from a source outside the often insular world of crypto: veteran investor Russell Napier, the author of several books and the âSolid Groundâ newsletter.
Napier recently detailed what Hayes calls âthe lose-lose situationâ facing the US and Japan: the likelihood Japan will have to sell its US Treasuries to boost a weakening yen.
In that scenario, the US would print money to buy bonds âto fix the price and yield at a politically expedient level,â Hayes writes.
Chinese competition
Japan and China are both export-driven countries competing for customers in emerging markets, Hayes wrote.
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The weaker their currencies, the more affordable their products.
If the yen weakens further, âChina will respond by devaluing the yuan,â Hayes writes.
If the yuan falls, manufacturing in China becomes cheaper, and businesses lose the incentive to build factories in the US.
It would be a blow to President Joe Bidenâs attempt to revive manufacturing in former Democratic strongholds like Michigan, Hayes said.
Hayesâ thesis also rests on an assumption that China can persuade the US to instruct Japan to strengthen the yen.
The âeasy buttonâ
If Japan raised interest rates, however, banks, insurance funds, and others would be forced to sell Treasuries, according to Hayes.
Instead, the US and Japan can take advantage of a tool he called a dollar-yen swap line.
âImagine the Japanese needed $1 trillion worth of firepower to strengthen the yen from 156 to 100,â Hayes writes.
The Federal Reserve would swap $1 trillion for an equivalent amount of yen â the Fed prints dollars and the Bank of Japan prints yen.
While the Fed might hold onto its yen, the BOJ will use dollars, ploughing them into the world economy.
Functionally, it is the same money-printing, inflation-fuelling process that would have transpired if Japan raised interest rates, said Hayes.
âThe swap line is better politically because it happens in the shadows,â he writes.
On a recent podcast hosted by crypto venture firm Arrington Capital, Hayes said the dollar-yen swap would open an âunlimited spigot of dollar liquidity, which will push up asset prices.â
That includes crypto.
âThis is the lite version of why all crypto traders must constantly monitorâ the dollar and yen currency pair, he said.
âIf my theory becomes reality, it is trivial for any institutional investor to buy one of the US-listed Bitcoin ETFs.â
Crypto market movers
- Bitcoin is down 1.4% over the past 24 hours to about $69,964.
- Ethereum is up 2.3% over the same period to about $3,747.
What weâre reading
Aleks Gilbert is a New York-based DeFi correspondent. Have a tip? You can reach him at aleks@dlnews.com.