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The Bank of Japan has presented crypto traders with a big opportunity, according to Arthur Hayes.
The co-founder of crypto exchange BitMEX argued that a BoJ’s Wednesday decision to not hike interest rates any further meant that the crisis was over and that a big rally was on its way.
“Just so I’m clear. Buy the dip! Because the BoJ caved,” Hayes posted on X.
Last week, the BoJ’s hiked rates to 0.25%, up from a range of 0.1% to 0%, to fight inflation.
The decision contributed to the chaos that saw crypto markets’ total value plunge 17% to $1.8 trillion on Monday.
It has since bounced back to $2.1 trillion.
Japan’s decision to hike interest rates rattled investors who have taken advantage of the country’s low interest rates to borrow yen and buy high-performing US equities and bonds with it — a strategy called the “carry trade.”
If Japanese interest rates rise again, investors will be forced to sell these US assets in order to pay interest on their borrowed yen.
Japanese institutions and investors are “running $24 trillion worth of risk” on the carry trade, Hayes said in a Wednesday essay. That’s almost six times the size of Japan’s GDP.
The US market would take a massive hit if such a trade were unwound, Hayes said.
It already got a taste of it on Monday when investors panicked, and the S&P 500 and Nasdaq dropped 4.2% and 6.3%, respectively.
A market meltdown would be a problem for Vice President Kamala Harris’ presidential campaign, Hayes said.
According to Hayes, Harris will instruct US Secretary of the Treasury Janet Yellen to use the monetary tools available to her to avert a financial crisis, and to inject up to $1.05 trillion in the system before the end of the year.
In other words, not only was a Japan-led crisis averted, but liquidity conditions could potentially improve, buoying Bitcoin and other risk-on assets.
Tom Carreras is a markets correspondent at DL News. Got a tip about Bitcoin and Japan? Reach out at tcarreras@dlnews.com
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