Arthur Hayes's new article: Now is the best time to invest in Bitcoin and altcoins

Original Title: Group of Fools

Author: Arthur Hayes

Compiled by: Ismay, BlockBeats

Editor's Note: In this article, Hayes explores cryptocurrency investment strategies under the current macroeconomic situation. With interest rate cuts from the Bank of Canada and the European Central Bank, the cryptocurrency market is set to recover from the summer slump, signaling a new bull market. Hayes believes that since 2009, Bitcoin and other cryptocurrencies have been powerful weapons against the traditional financial system. In the changing macro environment, Hayes suggests actively going long on Bitcoin and altcoins and expresses support for new project token issuances, as the market is poised for a strong rebound.

The USD-JPY exchange rate is the most important macroeconomic indicator. In my previous article, “The Easy Button,” I wrote about the need to strengthen the yen, proposing that the Federal Reserve could exchange newly printed dollars for yen with the Bank of Japan (BOJ) in unlimited quantities. This would allow the BOJ to provide unlimited dollar firepower to the Japanese Ministry of Finance (MOF) to buy yen in the global foreign exchange market.

While I still believe in the effectiveness of this solution, it seems that the central bank charlatans managing the Group of Seven (G7) have chosen to let the market believe that the interest rate differentials between the yen and the dollar, euro, pound, and Canadian dollar will narrow over time. If the market believes in this future state, it will buy yen and sell other currencies. Mission accomplished!

To make this magic work, the G7 central banks (the Federal Reserve, European Central Bank "ECB," Bank of Canada "BOC," and Bank of England "BOE") must lower their "high" policy rates.

It is crucial to note that the BOJ's policy rate (green) is 0.1%, while other countries' rates are between 4-5%. The interest rate differential between domestic and foreign currencies fundamentally drives exchange rates. From March 2020 to early 2022, everyone was playing the same game. As long as you stayed home, caught the flu, and got the mRNA vaccine, there was free money. When inflation became so severe that the elites could no longer ignore the suffering and hardships of the common people, the G7 central banks—except for the BOJ—actively raised interest rates.

The BOJ cannot raise rates because it owns over 50% of the Japanese Government Bond (JGB) market. When rates fall, JGB prices rise, making the BOJ appear solvent. However, if the BOJ allows rates to rise, JGB prices will fall, and this highly leveraged central bank will suffer catastrophic losses. I did some terrifying math for readers in “The Easy Button.”

This is why if the G7 decision-makers, led by Yellen, decide to narrow the interest rate differential, the only option is for those central banks with "high" policy rates to lower their rates. In traditional central bank theory, if inflation is below target, lowering rates is beneficial. What is the target?

For some reason, I don't know why, every G7 central bank has an inflation target of 2%, regardless of differences in culture, growth, debt, population, etc. Is the current inflation rate rapidly crossing 2%?

Each colored line represents the inflation target of different G7 central banks. The horizontal line is 2%. Not a single G7 country's inflation statistics—even those manipulated and dishonest government-released statistics—are below target. Putting on my technical analysis hat, it seems that G7 inflation has formed a local bottom in the 2-3% range, after which it will explode higher.

Given this chart, a traditional central bank governor would not lower rates at the current level. However, this week, the Bank of Canada (BOC) and the European Central Bank (ECB) lowered rates while inflation was above target. This is strange. Is there some sort of financial turmoil that requires cheaper money? There isn't.

The Bank of Canada (BOC) lowered its policy rate (yellow) while inflation (white) was above target (red).

The European Central Bank (ECB) lowered its policy rate (yellow) while inflation (white) was above target (red).

The problem lies with the weak yen. I believe Ms. Yellen has stopped the "Kabuki" performance of raising rates. It is now time to maintain the US-led global financial system. If the yen is not strengthened, the bad guys, the Chinese red elements, will unleash a depreciated yuan to match the super cheap yen of their main export competitor, Japan. In the process, US Treasuries will be sold off, and if that happens, it will mean game over for "American hegemony."

Next Steps

The G7 will hold a meeting in a week. The post-meeting communiqué will attract significant market interest. Will they announce some coordinated currency or bond market operations to strengthen the yen? Or will they remain silent but agree that all countries except the BOJ should start lowering rates? Stay tuned!

The big question is whether the Federal Reserve will start lowering rates so close to the November US presidential election. Typically, the Fed does not change policy close to an election. However, typically, favored presidential candidates do not face possible prison sentences, so I am prepared to adjust my thoughts flexibly.

If the Fed lowers rates at the upcoming June meeting while their favored adjusted inflation indicator remains above target, the USD-JPY exchange rate will drop significantly, meaning the yen will strengthen. Given that "Slow Joe" Biden is facing a Waterloo in the polls due to rising prices, I do not believe the Fed is ready to lower rates. The average American clearly cares more about the rising cost of vegetables than the cognitive abilities of the elderly seeking re-election. Fairly speaking, Trump is also a "vegetable" because he enjoys McDonald's fries and watching "Shark Week." Nevertheless, I still believe that lowering rates is political suicide. My basic expectation is that the Fed will keep current policies unchanged.

By June 13, when these amateurs sit down to enjoy a lavish taxpayer-funded meal, the Fed and the BOJ will have held their June policy meetings. As I mentioned earlier, I expect no changes in monetary policy from the Fed and the BOJ. Shortly after the G7 meeting, the Bank of England (BOE) will also hold a meeting, and although the market generally expects its policy rate to remain unchanged, given the rate cuts from the BOC and ECB, I think we might see an unexpected cut. The BOE has nothing to lose. The Conservatives will face a crushing defeat in the next election, so there is no reason to defy the orders of their former colonial rulers to control inflation.

Leaving the Turbulent Zone

This week, the rate cuts from the Bank of Canada and the European Central Bank have opened the door to changes in central bank policies in June, which will free cryptocurrencies from the summer slump in the Northern Hemisphere. This is not the baseline scenario I expected. I thought the fireworks would ignite in August, just when the Fed holds the Jackson Hole symposium. That is usually the venue for announcing sudden changes in policy for the fall.

The trend is clear. Marginal central banks are beginning a easing cycle.

We know how to play this game. This is the game we have been playing since 2009, when our savior Satoshi gave us the weapon to defeat the traditional financial demons.

Go long on Bitcoin, then on other altcoins.

The macro environment has changed relative to my baseline, so my strategy will change accordingly. For those asking me whether to release their tokens now or later for the Maelstrom portfolio project, my answer is to start now!

For my excess synthetic dollar cash (e.g., Ethena's USD, USD e) that is earning a hefty annual yield, it is time to redeploy it into altcoins I believe in. Of course, after I purchase, I will inform readers what they are. But it is certain that the crypto bull market is awakening and is about to pierce through the disguises of the profligate central bankers.