Arthur Hayes, the founder of the cryptocurrency derivatives exchange BitMEX, wrote in an article today that in order to curb the continuous depreciation of the yen, the Federal Reserve may reach an unlimited agreement with the Bank of Japan on the exchange of US dollars for yen. This will lead to a significant depreciation of the US dollar and trigger a new round of bullish trends in the cryptocurrency market, with the price of Bitcoin potentially reaching the $1 million mark.
Hayes pointed out that the exchange rate between the US dollar and the yen is one of the most important global economic variables, and the complex currency policy interactions between Japan, the United States, and China, as well as their profound impact on the global economy, affect the trend of the cryptocurrency market.
When discussing the current situation of the yen continuously depreciating due to the widening interest rate differential between the US and Japan, Hayes stated that the Bank of Japan will not be willing to raise interest rates because it is the largest holder of Japanese government bonds. When interest rates rise, bond prices will fall, which means that the Bank of Japan will incur the greatest losses.
However, if the Bank of Japan does not raise interest rates and the Federal Reserve does not lower interest rates, the interest rate differential between the US dollar and the yen will still exist. In the case of higher US dollar yields than the yen, investors will continue to sell the yen, leading to further depreciation of the yen.
Hayes mentioned that the depreciation of the yen will affect China’s export competitiveness and force China to respond by depreciating the yuan. This may trigger a currency war between China and the United States. If the United States does not intervene in the depreciation of the yen, China may take more aggressive measures, such as selling US bonds, buying gold, or even announcing a link between the yuan and gold, causing turmoil in the global financial system.
There is a way to weaken the US dollar, allowing China to stimulate its economy again and strengthen the yen without the need to sell US Treasury bonds. This is an unlimited currency swap between the US dollar and the yen, which is equivalent to implicitly implementing Yield Curve Control (YCC), and this will lead to excessive depreciation of the US dollar.
Hayes explained that the Federal Reserve printing US dollars and the Bank of Japan printing yen do not cost anything because they have their own domestic printing machines. Assuming that the Federal Reserve exchanges $1 trillion for an equal amount of yen:
According to Hayes, the depreciation of the US dollar represents a sharp increase in global US dollar liquidity, which will benefit the cryptocurrency market. If the US and Japanese central banks really adopt a straightforward currency swap policy, it will trigger a new round of bullish trends in the cryptocurrency market.
Hayes suggested that cryptocurrency traders closely monitor the future changes in the US dollar to yen exchange rate and appropriately increase their cryptocurrency allocations. He emphasized that when the market discovers that the US and Japan are engaging in large-scale currency swaps, and the scale of the swaps continues to expand, it is likely to signal the arrival of a bullish market for cryptocurrencies, and Bitcoin could reach $1 million.
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