Update (Aug. 28, 11:53 UTC): This article has been updated to add commentary from a Nansen analyst.
Arthur Hayes, co-founder of BitMEX, has likened the United States Federal Reserve’s actions to that of a short-term “sugar high” for the economy, with rally ripple effects for crypto.
In his latest article on Medium, Hayes directly connects some recent central bank decisions and the potential to push investors toward Bitcoin (BTC) and other cryptocurrencies.
In particular, Hayes cites the US Federal Reserve rate cuts as a catalyst for a potential Japanese yen carry trade unwinding, which could “derail the party” unless the Federal Reserve “raises the quantity of money.”
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Japanese yen carry trade and implications
In his article, Hayes argues that although the immediate effect of lower interest rates could keep traditional markets afloat, there are significant implications for fiat currencies and crypto assets.
Hayes highlights that the yen will likely strengthen as the interest rate differential narrows, risking global market turbulence and prompting central banks to expand balance sheets further.
This balance sheet expansion, or “real food,” as Hayes refers to it, would add liquidity to the markets and potentially inflate the value of finite-supply assets like BTC.
Related: Bitcoin needs to breach $70K, ETH $4K, for altseason start — Arthur Hayes
Money ease, crypto catalyst
Hayes’ article delves into the yen carry trade strategy, elaborating that investors borrow money in Yen, typically at low interest rates, to invest in higher-yielding opportunities in other currencies.
As central banks cut interest rates, Hayes notes that this narrowing difference in interest rates reduces the strategy’s appeal and could lead to a stronger yen and the unwinding of these trade positions.
“The fiat liquidity conditions could not be more favourable going into the final stretches of the third quarter. We have the following tailwinds at our backs as crypto hodlers.”
Speaking with Cointelegraph, Aurelie Barthere, an analyst at Nansen, explained that the rate cuts by the Federal Reserve were “one bullish driver for BTC.”
“[…] the largest risk is equities and their expensive valuations (22.5x fwd PE for the S&P 500). If we get a significant correction, this would tighten financial conditions for the economy and for risk assets like BTC, even with the Fed cutting rates.”
Related: Arthur Hayes reveals philosophy behind ‘Airheads’ Ordinals collection
BTC needs to break $70,000
On Aug. 12, Hayes wrote on Substack that BTC and Ether (ETH) must break the respective $70,000 and $4,000 price milestones before the altcoin season can start.
“The combination of a dollar liquidity-inspired Bitcoin and Ether rally into year-end will create a strong foundation for the return of a sexy shitcoin soiree.”
Hayes predicted that if $301 billion in T-bills are “net issued” by year-end, BTC will “quickly retrace the dump” caused by the yen strengthening, with the next stop being $100,000.
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