Markets
Fed May Trigger Dollar Drop to Boost Crypto
Arthur Hayes, former CEO of BitMEX, suggests that the Federal Reserve implement an unlimited dollar-yen swap agreement with the Bank of Japan (BOJ) to curb yen depreciation.
This measure could drastically devalue the US dollar, increasing global dollar liquidity, which could benefit the crypto marketparticularly Bitcoin.
Hayes’ Perspective on the Dollar-Yen Swap
Arthur Hayes explains that the proposed dollar-yen swap would work in a similar way to yield curve to control. The Federal Reserve would exchange dollars for yen with the Bank of Japan on an unlimited basis.
“The devaluation of the US dollar means a sharp increase in global US dollar liquidity. This will benefit the crypto market, led by Bitcoin,” said Hayes.
The former BitMEX CEO further notes that the Bank of Japan and Japan’s Ministry of Finance would use these dollars to stabilize the yen by purchasing it, avoiding the need to sell US Treasury bonds to raise dollars. This strategy helps Japan avoid rising interest rates, which would have a negative impact on its financial institutions that invest heavily in Japanese government bonds (JGB).
See more information: Bitcoin Price Prediction 2024/2025/2030
Geopolitically, a stronger yen could affect China, Japan’s direct export competitor. If Japan strengthens the yen through this swap agreement, China could devalue the yuan to maintain its export competitiveness.
Macroeconomic context and market reactions
The macroeconomic scenario remains crucial for crypto, especially Bitcoin. Recent US data has reduced the likelihood of further rate hikes. Meanwhile, China significantly increased stimulus measures, adding positive liquidity dynamics.
The People’s Bank of China (PBOC) recently announced plans for an ultra-long bond issuance and a historic bailout package to stabilize the real estate sector, essentially equivalent to quantitative easing (QE) for the real estate sector.
Growing liquidity from the US and China creates a favorable environment for Bitcoin. BTC spot ETF inflows increased, with $716 million in net inflows last week, reversing April’s outflows. Major institutional investors are also interested, with Millennium Management holding significant stakes in Bitcoin ETFs.
See more information: How to Trade a Bitcoin ETF: A Step-by-Step Approach
Bitcoin correlation with stocks. Source: Kaiko
The correlation between Bitcoin and US stocks remains an important metric to watch. Last week, Bitcoin’s 90-day correlation with US stocks rose to 0.17 from a multi-year low of 0.01 in March. This development highlights the importance of active monitoring and analysis in the current market environment.
In conclusion, the Federal Reserve’s potential implementation of an unlimited dollar-yen swap represents a significant policy change. This could have far-reaching effects on global liquidity, asset prices and competitive dynamics between large economies such as Japan and China.
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