Arthur Hayes, the former CEO of BitMEX, has released a new essay titled “Group of Fools,” asserting that now is the time to go long on Bitcoin.
Hayes, known for his direct style, outlines in his essay why he believes Bitcoin is poised for significant gains due to various macroeconomic factors and central bank policies.
Dollar-Yen Exchange Rate as a Key Indicator
Hayes emphasizes the importance of the dollar-yen exchange rate, calling it the most crucial macroeconomic indicator. He recalls his previous writing, “The Easy Button,” where he proposed that the US Federal Reserve (Fed) should exchange unlimited amounts of newly printed dollars with the Bank of Japan (BOJ) for yen. This would enable the BOJ to support the yen in global forex markets.
Hayes supports his recommendation but notes that the Group of Seven (G7) central banks have taken a different path. They are attempting to convince the market that the interest rate gap between the yen and other major currencies, such as the dollar, euro, pound, and Canadian dollar, will narrow. If the market accepts this, it will boost the yen’s value and devalue other currencies. Hayes argues that the G7 central banks must cut their high policy rates for this strategy to succeed. The BOJ, with a policy rate of 0.1%, contrasts sharply with these higher rates of 4-5%.
G7 Strategy and the Global Economy
From March 2020 until early 2022, central banks worldwide provided complimentary money to keep economies afloat during the pandemic. When inflation surged, all G7 central banks, except for the BOJ, raised rates aggressively. The BOJ could not follow suit due to its substantial Japanese Government Bond (JGB) market holdings. Allowing rates to rise would result in significant losses on its JGB holdings.
Hayes points out that if Janet Yellen, whom he nicknames “Bad Gurl Yellen,” decides to reduce the interest rate differential, central banks with high policy rates would need to cut them. Traditionally, cutting rates is only favorable if inflation is below target. However, G7 countries uniformly target a 2% inflation rate despite differences in their economies. Hayes includes a chart showing that no G7 country’s inflation rate is below the 2% target, suggesting that G7 inflation is forming a local bottom in the 2-3% range before rising higher.
Implications for Bitcoin and Crypto Markets
Hayes finds it unusual that the Bank of Canada (BOC) and the European Central Bank (ECB) cut rates despite inflation being above target. He believes the real issue is the weak yen. If the yen isn’t strengthened, China might devalue the yuan to compete with Japan’s cheap yen, potentially leading to a sell-off of US Treasuries and threatening the Pax Americana-led global financial system.
If the Fed cuts rates at its upcoming June meeting while their inflation measure remains above target, the dollar-yen exchange rate could shift significantly. Hayes doubts the Fed is ready to cut rates given the political pressure from rising prices. He predicts the Fed will maintain its current course.
The recent rate cuts by the BOC and ECB have already set the stage for significant movements in the cryptocurrency market. Hayes initially anticipated these changes would occur around August during the Fed’s Jackson Hole symposium. However, the trend is clear: central banks are beginning easing cycles.
Hayes advises investors to go long on Bitcoin and other cryptocurrencies, asserting that the changing macro landscape demands a shift in investment strategy. He plans to deploy his excess liquid crypto cash into conviction investments, predicting that the crypto bull market is reawakening and will challenge central bankers.
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