Arthur Hayes sees weak Japanese yen, rising bond yields boosting Bitcoin

Arthur Hayes, who helped establish the cryptocurrency exchange BitMEX, thinks trouble with Japan’s currency could ultimately lead to a significant increase in Bitcoin prices. He’s built a reputation for making strong calls about digital currencies.

Problems with the yen and declining prices on Japanese government debt indicate serious financial weakness, Hayes says. These issues could prompt action from American officials that would ultimately benefit Bitcoin.

How intervention could boost cryptocurrency markets

Hayes explained this in a blog entry called “Woomph.” The yen is weakening while yields on Japanese government bonds are increasing. That shows Japan is facing real economic strain. He thinks this situation will push the U.S. Treasury and Federal Reserve to step in.

When that happens, it’d pump new money into the system. This would exacerbate the situation. The Fed might also grow its balance sheet at the same time, which could give a boost to risky investments like Bitcoin.

This money flowing into markets would push Bitcoin and other major digital tokens, Hayes claims. It might break them out of their current flat period.

Japan’s dealing with mounting economic stress. The yen keeps losing value. That makes everything Japan imports more expensive since the country relies heavily on other nations for its energy. Rising yields on government bonds make it harder and costlier for the government to borrow.

Without outside help, Japan’s currency problems could push U.S. Treasury yields higher, Hayes stressed. America’s already running its biggest peacetime budget shortfalls ever. This would exacerbate the situation.

Hayes’s positive outlook on Bitcoin centers on how the yen’s drop and high interest rates affect the global economy. High yields on Japanese government bonds mean Japanese companies and investors are less likely to invest in foreign assets, which could initiate a damaging pattern. This could initiate a damaging pattern. U.S. Treasury yields might surge suddenly, prompting the Fed to take action.

Hayes outlined exactly how he thinks intervention would work. The New York Fed would create new bank reserves by printing dollars to trade for yen in currency markets. This would gradually push the yen’s value back up without shocking markets. Then those yen would go into Japanese government bonds, bringing yields down while the Fed assumes the interest rate risk.

Yen pressure creates global economic concerns

The yen’s faced intense selling pressure recently. It’s dropped sharply against the dollar over recent months. Hayes says this happened because Japanese officials lost control over long-term government bond yields. When JGB yields rise while the yen falls at the same time, it shows investors don’t trust the government to protect the currency’s value or handle its deficits properly.

Japan needs to import most of its energy. A cheaper yen directly raises the cost of bringing goods in. This drives up prices people pay every day and makes budget decisions harder.

The Bank of Japan holds more JGBs than anyone else. It’s sitting on huge paper losses from bond prices dropping. This eats away at confidence even more.

The Fed cut rates by 1.75% starting in September 2024. However, yields on 10-year Treasury bonds actually increased a bit, Hayes pointed out. Inflation keeps going, and there’s pressure on supply. If the yen situation forces more Treasury selling, it could make this worse. A stronger dollar would hurt American companies trying to sell goods overseas, as their products would cost more.

The Bank of Japan kept rates unchanged on January 23. They needed to raise them, but didn’t. Hayes predicted officials probably asked for American help to calm things down.

Bitcoin could jump once Fed intervention confirms that more money’s entering the system, if Hayes turns out to be right. The Wall Street Journal reported on this. But risks exist too. If no intervention comes, the yen could crash completely. That’d cause worldwide deflationary pressure that would hurt crypto. Or officials could move too hard, too fast, creating short-term market swings.

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