Arthur Hayes says the most important macro variable is the Japanese yen. The BitMEX co-founder predicted the US would print more money in response to a strengthening yen. Many believe that money printing drives up crypto prices.
Global capital markets started the week in the red and crypto prices fell the most since 2022.
US recession fears are contributing to market pessimism, along with concerns that Jerome Powell made a mistake by not cutting the benchmark interest rate at the Federal Reserve's last meeting.
BitMEX co-founder Arthur Hayes identified another market trigger: the Bank of Japan's recent decision to raise interest rates and its impact on the country's currency.
“The yen is the most important macro variable,” Hayes said News Last week, before the Monday sale. That will determine the prices of tech stocks and US debt going forward, he said.
While going to Japan…
If US policymakers react to Japan's rate hike as Hayes predicts, that could bode well for crypto. This isn't the first time Hayes has linked Japan's economy and crypto prices.
In May, Hayes argued that Japan's weak yen could ignite a crypto rally that would send Bitcoin to new highs.
Hayes says the situation starts with Japan's rising inflation.
Prices of goods and services in Japan are rising at the fastest rate since the 1980s.
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To combat inflation, the Bank of Japan announced a 0.25% interest rate hike on Thursday.
But there is a problem.
Raising rates would also increase the amount the Japanese government owes on its debt.
With Japanese public debt estimated at $9.2 trillion, or more than three times its GDP, a small rate hike would result in billions more in interest on debt payments.
To pay off the debt, the Japanese government must issue more debt.
Hayes said the government would ask Japanese investors to repatriate capital to ensure demand for new debt.
This means selling foreign investments — like tech stocks and US debt — and trading US dollars for yen.
“If they can sell that stuff, ship it home and put it in the banking system, the banking system can buy the debt that's been issued at prices that the government can afford,” Hayes said.
Termination of carry trade
Interest rates in Japan are historically very low.
As a result, Japanese investors borrowed the cheap yen, sold it for dollars, and invested in US stocks and bonds.
Now the BoJ is making it more expensive to borrow the yen, so investors are forced to hold off on this trade. It's called a carry trade, and whale-sized investors like hedge funds are exiting in droves, driving markets higher.
“The weakness in the US equity market is a precursor to what will happen over the next five to 10 years because the policy is unclear,” Hayes said.
“US tech will be hurt because the Japanese, and anyone who has funded in yen, will have to cover that little yen and repatriate the capital.”
Printing more money
Japan's new fiscal path will pull billions of dollars out of US stocks and bonds, prompting the US government and the Fed to respond.
“They're going to have to find a way to print the difference and fill the hole that the Japanese left,” Hayes said, adding that the US needs to make sure stocks keep rising and debt prices keep rising. They can finance the country.
There are different ways to fill a US hole. But they all ultimately involve quantitative easing — or the Fed printing more money.
This money printing is what Hayes is betting on for crypto prices.
Many attributed Bitcoin's meteoric 2021 rise to the Fed's quantitative easing policies in response to the Covid-19 pandemic.
It remains to be seen whether such money printing will happen again.
While Hayes is confident that the situation will be resolved as crypto moves higher, other investors aren't so sure.
Bitcoin fell below $50,000 for the first time since January amid a selloff.
There is Tim Craig News' Edinburgh-based DeFi correspondent. Reach out with tips at [email protected].
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