The Japanese banking industry is teetering on the edge of a crisis that will lead to the sale of nearly a trillion dollars’ worth of US Treasury bonds, a move that Arthur Hayes believes will give Bitcoin a new lease on life.
Hayes, the former CEO of BitMEX, predicts that the US Federal Reserve will intervene to prevent a massive sell-off in the open market. The Fed will offer to print dollars for the Bank of Japan, which will then flow into Bitcoin, injecting liquidity into the cryptocurrency.
The crisis in Japan is imminent. Japanese banks have been accumulating US Treasury bonds for years to take advantage of their higher yields, as interest rates in Japan have remained low. However, the situation has changed in recent years, and Japanese banks are now panicking and selling off their bonds. According to Arthur Hayes, this will inevitably push Bitcoin to reach new heights.
Hayes, who co-founded BitMEX, which was once the world’s largest Bitcoin derivatives exchange, shared his thoughts on the impending crisis in a recent blog post titled “Shikata Ga Nai.” In the essay, he explores a theory on how Janet Yellen, the former US Treasury Secretary, can prevent Japanese banks from dumping their treasury bonds.
Hayes notes that several Japanese banks have invested billions in US bonds and now face significant losses as interest rates rise and bond prices decline in the US. Just recently, Japan’s fifth-largest bank announced its plan to sell $63 billion worth of US bonds. Collectively, Japanese banks hold over $850 billion, most of which is in US bonds, and a significant portion of it could flood the market.
If such large sums hit the open market, it would have devastating consequences for the US bond sector. The Federal Reserve cannot allow this to happen, and it is expected that Janet Yellen will take action. Hayes believes that Yellen will instruct the Bank of Japan to buy all US bonds from commercial banks through direct transactions that won’t impact the open market.
To compensate the Bank of Japan, Yellen is likely to print hundreds of billions of dollars and provide them to BOJ through the Fed’s Foreign and International Monetary Authorities (FIMA) repo facility, which was established during the peak of the COVID-19 pandemic.
Hayes explains that an increase in the FIMA repo facility indicates the injection of dollar liquidity into the global money markets. This, in turn, will benefit Bitcoin and other cryptocurrencies. Therefore, he felt it was necessary to alert readers about this covert money printing strategy.
In simpler terms, Hayes compares the Bank of Japan’s offer to buy US bonds to Caroline Ellison, the CEO of Alameda, offering to buy all FTX tokens (FTT) at the current market price before they crash. However, unlike Ellison, who only had $10 billion at her disposal, the Bank of Japan can continue buying indefinitely because Yellen will print as many dollars as needed to prevent the collapse of US bonds.
Hayes, whose new company Maelstrom has invested in Elixir, Ethena, and Ether.fi, concludes that the Japanese banking system is providing a new source of dollar liquidity for crypto investors, further fueling the crypto bull market.
Currently, Bitcoin is trading at $64,290 and has remained relatively stable over the past day, with a 60% decrease in trading volume to $8 billion.
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