• Arthur Hayes outlines how the yen could ignite the next crypto rally.
  • The BitMEX co-founder sketched out events that would trigger “unlimited spigot of dollar liquidity.”

Japan’s 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.

“Crypto booms, as there is more dollar and yuan liquidity floating in the system,” Hayes wrote.

“Bitcoin is the best-performing asset in the face of global fiat debasement.”

‘Lose-lose situation’

Hayes drew inspiration from a source outside the often insular world of crypto: veteran investor Russell Napier, the author of several books and the “Solid Ground” newsletter.

Napier recently detailed what Hayes calls “the lose-lose situation” 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 “to fix the price and yield at a politically expedient level,” 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, “China will respond by devaluing the yuan,” 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 Biden’s attempt to revive manufacturing in former Democratic strongholds like Michigan, Hayes said.

Hayes’ thesis also rests on an assumption that China can persuade the US to instruct Japan to strengthen the yen.

The ‘easy button’

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.

“Imagine the Japanese needed $1 trillion worth of firepower to strengthen the yen from 156 to 100,” Hayes writes.

The Federal Reserve would swap $1 trillion for an equivalent amount of yen — 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.

“The swap line is better politically because it happens in the shadows,” he writes.

On a recent podcast hosted by crypto venture firm Arrington Capital, Hayes said the dollar-yen swap would open an “unlimited spigot of dollar liquidity, which will push up asset prices.”

That includes crypto.

“This is the lite version of why all crypto traders must constantly monitor” the dollar and yen currency pair, he said.

“If my theory becomes reality, it is trivial for any institutional investor to buy one of the US-listed Bitcoin ETFs.”

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 we’re reading

Aleks Gilbert is a New York-based DeFi correspondent. Have a tip? You can reach him at aleks@dlnews.com.

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