A Fed move to backstop Japan bonds could boost Bitcoin: Arthur Hayes

Prominent crypto essayist and BitMEX co-founder, Arthur Hayes, has articulated a bold thesis suggesting that a looming crisis in the Japanese Government Bond (JGB) market could force the U.S. Federal Reserve (Fed) into an emergency intervention, an action that would dramatically inflate the price of Bitcoin (BTC).

Hayes’s argument centers on the precarious state of Japan’s debt-ridden financial system. The Bank of Japan (BOJ) has been using its Yield Curve Control (YCC) policy for years, printing vast sums of yen to purchase JGBs and keep long-term interest rates artificially low. With Japan holding a debt-to-GDP ratio exceeding 250%—the highest among developed nations—any significant rise in global interest rates threatens to crash the JGB market and potentially destabilize Japan’s massive pension and banking sectors.

According to Hayes, Japan is too systemically important to the global economy to be allowed to fail. If the BOJ is forced to abandon YCC, leading to a spike in yields, the resulting global financial contagion would necessitate an emergency response from the only entity capable of providing sufficient liquidity: the U.S. Federal Reserve.

Hayes predicts that the Fed would step in by opening massive dollar swap lines with the BOJ, effectively injecting U.S. dollar liquidity into the global financial system to backstop the Japanese economy and prevent a catastrophic collapse. While the Fed’s intent would be to stabilize markets, the resulting liquidity injection would have significant inflationary consequences.

The core of the thesis is that this large-scale quantitative easing (QE), performed under the guise of an international bailout, would rapidly devalue fiat currencies, particularly the dollar. Investors, seeking protection from currency devaluation and financial uncertainty, would flee traditional assets and seek refuge in hard, scarce assets. Bitcoin, being the ultimate scarce, non-sovereign asset, would be the prime beneficiary of this flight to safety. Hayes suggests that such a massive liquidity event could easily propel Bitcoin into a new parabolic price phase.

Source: A Fed move to backstop Japan bonds could boost Bitcoin: Arthur Hayes