The Federal Reserve and Bank Of Japan will be key drivers of a Bitcoin price rally to $1 million, predicts BitMEX co-founder Arthur Hayes, when both the central banks hit “the easy button” to rescue the Asian nation’s flagging currency.

Hayes argued in an essay published on Monday that the dollar-yen exchange rate is “the most important global economic variable” right now, due to its potential to influence central bankers into ballooning the global money supply.

He says the story, however, begins in China, which has the most to lose from the yen’s ongoing devaluation trend.

“If the CNYJPY exchange rate rises (weaker JPY vs. stronger CNY), China’s export competitiveness is hurt,” Hayes wrote. “If the yen keeps weakening, China will respond by devaluing the yuan.”


Since a country’s local goods are denominated in its local currency, a fast-inflating currency is good for countries that rely on exports to keep their economy moving.

Unfortunately for China, Japan is its biggest competitor in the automotive export market, and as the yen becomes increasingly cheap, Japan is difficult to compete with on prices.

Hayes expects the Bank of China to pressure the United States into making Japan strengthen the yen. Even so, he writes that the Bank Of Japan (BOJ) will have trouble strengthening its currency through traditional methods like raising interest rates.

“The BOJ would meltdown faster than Sam Bankman-Fried on a witness stand if they were to raise rates,” Hayes wrote, explaining that doing so would crater the value of Japanese government bonds which are 50% owned by the central bank itself.


To keep bonds from collapsing, the BOJ would have to force local banks and pension funds to buy the government’s debt, Hayes said. Funding that purchase would require selling US Treasuries and US stocks, however—which would run against American interests.

Hayes concludes that instead of raising rates, the BOJ must resort to “the easy button”: the unlimited US dollar “swap line” where the BOJ and Federal Reserve can swap yen for dollars at a specified rate.

Since the BOJ can freely print more yen, their cost of gaining more dollars is effectively zero. Those dollars may then be used to buy up the yen, strengthening Japan’s currency while simultaneously weakening the dollar.

The final scenario would be a win for all parties: China maintains a weaker currency than Japan, the BOJ stays solvent, and the dollar weakens because of the BOJ’s open-market yen purchases.

It’s also good for crypto since environments with lots of money printing tend to drive up Bitcoin’s price alongside other assets, Hayes argued.

“When something is done about the weak yen, I will mathematically guestimate how flows into the Bitcoin complex will ratchet the price to $1 million and possibly beyond,” the investor wrote.

Edited by Ryan Ozawa.


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