Bitcoin is unlikely to see a significant increase until the Federal Reserve takes action regarding the current turmoil in Japan's currency and government bond markets, according to Arthur Hayes. He argues that this situation, rather than crypto-specific events, will be what ultimately drives Bitcoin’s next upward movement.
In his recent essay titled "Woomph," which was published on Wednesday, Hayes discusses the recent decline of the yen and the plummeting prices of long-dated Japanese government bonds (JGBs). He describes these occurrences as systemic warning signs that typically precede necessary government intervention.
"The financial markets shifted dramatically as the yen depreciated and JGB values dropped," Hayes noted. He emphasizes the importance of understanding how the instability of the yen and JGB affects global markets at this critical time. He poses a crucial question: Will the collapse of the yen and the JGB market prompt either the Bank of Japan (BOJ) or the Fed to engage in money printing? His answer is affirmative, and he promises to delve into the mechanics of such interventions that were hinted at last Friday.
Hayes outlines a potential scenario in which the New York Fed could expand bank reserves, convert dollars to yen, and then utilize those yen to buy JGBs. This move would stabilize both the USD/JPY exchange rate and Japan’s long-term yields while also managing foreign exchange and duration risks on the Fed’s balance sheet.
He points out that signs of this intervention would be evident in a specific entry labeled "Foreign Currency Denominated Assets" on the Fed's weekly H.4.1 balance sheet report. A rapid increase in this figure, he argues, would indicate that the Fed is starting to acquire foreign-currency assets, possibly including JGBs, aligning with the intervention strategy he describes.
However, Hayes is quick to clarify that the motivation behind such actions would not be altruistic. He highlights Japan’s substantial stock of foreign assets and its significant ownership of US Treasuries, suggesting that rising JGB yields could lead to a repatriation of Japanese capital, thus increasing pressure on US borrowing rates. Moreover, ongoing discussions in Japan concerning the yen’s weakness and the BOJ’s tightening policies create further context; the BOJ maintained its policy rate at 0.75% as of January 23.
A pivotal point in Hayes’ analysis is what he refers to as a deliberately communicated signal: speculation in the market that US officials have "checked prices" with Wall Street dealers—a phrase often interpreted by traders as an early indication of potential FX intervention. The Financial Times reported that this so-called “rate check” contributed to a sudden shift in the yen and fueled speculation regarding coordinated actions.
Furthermore, he mentions that the BOJ’s choice to maintain its current stance, even amid market pressures urging a stronger yen defense, has increased the likelihood of needing assistance from the US. The political situation in Japan is also noteworthy, as Sanae Takaichi has dissolved parliament and called for a snap election on February 8, an event that has garnered considerable international media attention recently.
So, why does Hayes connect this situation back to Bitcoin? For him, the stress in Japan's financial landscape is fundamentally a liquidity issue. He posits that Bitcoin will struggle to break free from its current stagnation unless there is an infusion of new money into the system. "This examination of Japanese financial markets is crucial because for Bitcoin to escape its sideways trend, it requires a substantial amount of money printing," he stated.
Hayes goes on to present a theory that the actual flow of cash through the deteriorating global monetary system does not yet support his hypothesis. He intends to monitor certain entries on the Fed’s balance sheet over time to confirm his ideas.
Additionally, he notes a more immediate complication: a strengthening yen has historically been associated with risk-averse behavior as leveraged investors unwind trades funded by the yen. He believes this dynamic could negatively impact Bitcoin until any liquidity surge materializes.
His strategic advice is to remain patient until there is clear evidence on the balance sheet. Hayes mentions that he has already exited leveraged Bitcoin proxies, including Strategy (MSTR) and Japan-listed Metaplanet, in anticipation of the yen's movement. He expresses willingness to re-enter the market if the "Foreign Currency Denominated Assets" line shows a marked increase.
Moreover, he indicates that his fund, Maelstrom, continues to invest in Zcash (ZEC) while maintaining other solid DeFi positions unchanged, only considering additional investments if there is visible growth in the balance sheet due to interventions.
As of now, Bitcoin is priced at $89,137.
