Fed Plan to Save Yen May Pump Up Bitcoin Prices

Arthur Hayes, a well-known macro commentator and former BitMEX co-founder, believes that a Federal Reserve plan to help Japan defend the yen will lead to an increase in dollar liquidity, which he thinks will pump up Bitcoin (BTC) prices. According to Hayes, this scenario is likely because the Fed's Foreign and International Monetary Authorities (FIMA) Repo Facility will allow foreign governments to post US Treasuries as collateral for short-term dollar loans, effectively printing new money.

The mechanism Hayes describes involves Tokyo reposing part of its $1.143 trillion in US Treasuries for dollars, selling the dollars for yen, and then reinvesting the yen into domestic bonds and stocks. This would lead to an increase in the Fed's balance sheet, which is similar to quantitative easing (QE), but framed as a lending facility.

Hayes argues that these dollars will not stay contained and will instead find their way into Bitcoin, making it one of the most liquidity-sensitive assets in the market. He points to the pandemic-era period when the Fed's balance sheet grew from $4.2 trillion to nearly $8.9 trillion, during which time Bitcoin's price increased significantly.

Hayes also notes that a sudden yen spike could lead to a sharp Bank of Japan (BOJ) rate hike, which risks a repeat of the 2024 shock that dragged down stocks and crypto together. However, he believes that routing the rescue through FIMA will allow for a more gradual unwind.