The global economy is in a delicate situation. Arthur Hayes, founder of BitMEX, explains the geopolitical and economic mechanisms that could cause the price of Bitcoin to rise above a million dollars in a new blog post. A closer look at exchange rates and the reactions of major economic powers shows why this forecast is not as far-fetched as it seems at first glance.
The meaning of the dollar-yen exchange rate
The exchange rate between the US dollar and the Japanese yen plays a central role in the global economy. Hayes explains that the dollar-yen exchange rate is the most important global economic criterion because it has a profound impact on political and economic decisions in the United States and Japan. The US Federal Reserve (Fed) and the US Treasury have the ability to exchange unlimited dollars for yen to influence the exchange rate.
This strategy allows the Central Bank of Japan (BoJ) and the Japanese Ministry of Finance (MOF) to strengthen the yen by buying yen with these dollars. This avoids a number of economic problems that would arise if the BoJ were forced to raise interest rates.
Japan's financial balancing act
Japan faces a difficult decision. The BoJ holds over 50% of all outstanding Japanese government bonds (JGBs). If the BoJ raises interest rates, the value of these bonds would fall dramatically, leading to huge losses. Therefore, the BoJ is unlikely to raise interest rates unless it finds a way to spread these losses across other financial players.
Keeping up with macro is key to crypto – currently, eyes are on the dollar-yen exchange rate and how the Fed’s dollar-yen swaps with the BOJ risk destabilising the market.
— BitMEX (@BitMEX) May 21, 2024
In the latest CTD, @cryptohayes shares why he believes ineffective intervention by governments will likely… pic.twitter.com/FmmrpuMTB3
Another aspect is that a weak yen hurts Japan in global competition, especially against China. China and Japan are direct export competitors, and a weaker yen makes Chinese products more expensive and less competitive on the global market. This could prompt China to devalue the yuan, which would have far-reaching economic and geopolitical consequences.
Impact on Bitcoin
Arthur Hayes believes that these complex economic and political dynamics will significantly influence the price of Bitcoin. He predicts that Bitcoin could rise to at least $1 million as global economic uncertainties increase and elites continue to rely on short-term solutions to maintain the status quo.
The massive dollar-yen swap line increases the dollar money supply, weakening the dollar and leading to increased liquidity. This increased liquidity may, in turn, lead to an increase in Bitcoin demand as investors look for safe havens. Bitcoin has proven to be one of the best assets during times of global fiat currency debasement.
In a previous prediction, Hayes also predicted $1 million for Bitcoin.
The role of China
China plays a key role in this scenario. The country could devalue the yuan to boost its exports and combat deflation. Such a step would have far-reaching consequences for the global economy. At the same time, China could use its dollar reserves to buy gold and peg the yuan to gold, which would further destabilize global financial markets.
Hayes speculates that China could use these threats to influence the US to take action to strengthen the yen. This could be achieved through an unlimited dollar-yen currency swap line, increasing the dollar supply and strengthening the yen without the BoJ having to raise interest rates.
Conclusion
Arthur Hayes' analysis shows how interconnected the global financial systems are and how political decisions at the international level can influence markets. His prediction that Bitcoin could rise to at least $1 million is based on a detailed look at current economic and geopolitical developments.
Looking ahead, it remains to be seen how these dynamics will develop. However, one thing is certain: the global economy is facing challenging times and Bitcoin could become more important as a safe haven.
