Arthur Hayes: Now is the best time to invest in Bitcoin and altcoins

Original title: Group of Fools

Original author: Arthur Hayes

Original translation: Ismay, BlockBeats

 

Editor's note: Hayes explores cryptocurrency investment strategies in the current macroeconomic situation in this article. With the Bank of Canada and the European Central Bank cutting interest rates, the cryptocurrency market is about to recover from the summer downturn, heralding a new round of bull market. Hayes believes that since 2009, Bitcoin and other cryptocurrencies have been a powerful weapon against the traditional financial system. In the current macro-environment, Hayes recommends actively going long on Bitcoin and altcoins, and supports the issuance of tokens by new projects, because the market will usher in a strong rebound.

 

The US dollar-yen exchange rate is the most important macroeconomic indicator. In my last article, The Easy Button , I wrote that something had to be done to strengthen the yen, and the solution proposed was that the Fed could swap newly printed dollars with the Bank of Japan (BOJ) for unlimited amounts of yen. This would allow the Bank of Japan to provide the Ministry of Finance (MOF) of Japan with unlimited dollar firepower to buy yen in global foreign exchange markets.

 

While I still believe in the effectiveness of this solution, it seems that the central bank charlatans running the G7 (Group of Seven) group of morons have chosen to convince the market that the interest rate differential between the yen and the dollar, euro, pound, and maple (Canadian) dollar will narrow over time. If the market believes this future state, it will buy the yen and sell the other currencies. Mission accomplished!

 

In order for this magic to work, the G7 central banks (the Fed, the European Central Bank "ECB", the Bank of Canada "BOC", and the Bank of England "BOE") must lower their "high" policy rates.

 

 

It is critical to note that the Bank of Japan (BOJ) policy rate (green) is 0.1%, while rates elsewhere are 4-5%. The interest rate differential between local and foreign currencies fundamentally drives exchange rates. From March 2020 to early 2022, everyone was playing the same game. There was free money as long as you stayed home, had the flu, and got the mRNA vaccine. When inflation was so severe that the elites could no longer ignore the pain and suffering of their common people, the G7 central banks - except the Bank of Japan - all aggressively raised rates.

 

The Bank of Japan cannot raise rates because it owns over 50% of the Japanese Government Bond (JGB) market. When rates fall, JGB prices rise, making the Bank of Japan look solvent. However, if the Bank of Japan allows rates to rise and JGB prices to fall, this highly leveraged central bank will suffer catastrophic losses. I do some scary math for readers in Easy Button.

 

That is why if it is up to G7 policymaker Janet Yellen to narrow the spread, the only option is for those central banks with “high” policy rates to lower their rates. In traditional central bank theory, rate cuts are favorable if inflation is below target. What is the target?

 

For some reason, I don’t know why, every G7 central bank has an inflation target of 2%, regardless of differences in culture, growth, debt, population, etc. Is the current inflation rate hurtling through 2%?

 

 

Each colored line represents the inflation target of a different G7 central bank. The horizontal line is 2%. No G7 country has inflation statistics - even those released by manipulated and dishonest governments - below target. Putting on my technical analysis hat, it seems that G7 inflation has formed a local bottom in the 2-3% range before bursting higher.

 

Given this chart, a traditional central banker would not cut rates at current rates. Yet, this week, the Bank of Canada (BOC) and the European Central Bank (ECB) cut rates when inflation was above target. This is odd. Was there some kind of financial turmoil that required cheaper money? No.

 

 

The Bank of Canada (BOC) cut its policy rate (yellow) when inflation (white) was above target (red).

 

 

The European Central Bank (ECB) cuts its policy rate (yellow) when inflation (white) is above target (red).

 

The problem is the weak yen. I think Miss Yellen has stopped the kabuki show of rate hikes. It is time to get down to business in preserving the US-dominated global financial system. If the yen is not strengthened, the big bad Chinese reds will unleash a devalued yuan to match the ultra-cheap yen of their main export rival, Japan. In the process, US Treasuries will be sold off, and if that happens, it will mean the end of the American-ruled world.

 

Next

 

The G7 will meet in a week. The post-meeting communique will be of great interest to the market. Will they announce some kind of coordinated currency or bond market operation to strengthen the yen? Or will they remain silent but agree that everyone except the Bank of Japan (BOJ) should start cutting rates? Stay tuned!

 

The big question is whether the Fed will start cutting rates so close to the November U.S. presidential election. Typically, the Fed does not change policy so close to an election. However, typically, the favored presidential candidate does not face a possible prison sentence, so I am prepared to be flexible in my thinking.

 

If the Fed cuts rates at the upcoming June meeting and their preferred adjusted inflation measure remains above target, the USD-JPY exchange rate will fall sharply, which means the yen will strengthen. Given that "Slow Joe" Biden is suffering a setback in the polls due to rising prices, I don't think the Fed is ready to cut rates. The average American is obviously more concerned about the fact that their vegetables have become more expensive than the cognitive ability of the old man seeking re-election. To be fair, Trump is also a "vegetable" because he likes to eat McDonald's fries and watch "Shark Week". Still, I think cutting rates is political suicide. My base case is that the Fed will keep current policy unchanged.

 

By June 13, when these amateurs sit down to their taxpayer-funded feast, the Fed and the Bank of Japan have already held their June policy meetings. As I have said before, I do not expect any changes in monetary policy from the Fed and the Bank of Japan. The Bank of England (BOE) will also meet shortly after the G7 meeting, and although the market generally expects its policy rate to remain unchanged, I think we may have a surprise cut given the rate cuts from the Bank of Canada and the European Central Bank. The Bank of England has nothing to lose. The Conservatives are set to suffer a heavy defeat at the next election, so there is no reason to disobey the orders of their former colonial masters in order to control inflation.

 

Leaving the Turbulence Zone

 

This week, rate cuts from the Bank of Canada and the European Central Bank kicked off the June central bank policy changes that will lift cryptocurrencies out of the northern hemisphere summer doldrums. This is not the base case I expected. I thought the fireworks would go off in August, right when the Fed holds its Jackson Hole Symposium. That is usually where sudden policy changes are announced in the fall.

 

 

The trend is clear. Marginal central banks are beginning easing cycles.

 

We know how to play this game. It’s the game we’ve been playing since 2009 when our savior Satoshi Nakamoto gave us the weapons to defeat the demons of legacy finance.

 

Go long Bitcoin, then other altcoins.

 

The macro environment has changed relative to my benchmark, so my strategy will change with it. To those Maelstrom portfolio projects that ask me if I’m launching their tokens now or later, my answer is, start now!

 

For the excess synthetic USD cash I hold (e.g. Ethena’s USD, USDe) and is earning a nice annual yield, now is the time to deploy it again in altcoins where I have conviction. Of course, after I buy, I will tell readers what these are. But one thing is for sure, the crypto bull market is waking up and about to pierce the veneer of profligate central bankers.

 

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