Hayes Bets on EUR/JPY, Sees Bitcoin Benefit from Expanded Dollar Liquidity

Arthur Hayes, chief investment officer at Maelstrom, thinks investors are focusing too much on Federal Reserve Chairman Kevin Warsh's statements. Instead, he recommends watching the EUR/JPY exchange rate for signs of dollar liquidity expansion.

Hayes believes rising pressure on French banks could prompt the Federal Reserve to increase the money supply and preserve the US repo market's functioning. He sees this move benefiting Bitcoin and other cryptocurrencies.

The indicator Hayes tracks is the EUR/JPY pair, which was near 185 when the article was published. He projects a drop to 140 or lower by June 2027, linking this move to Treasury Secretary Scott Bessent's strategy to weaken the euro and boost US Asian allies' currencies.

Hayes also mentioned Japan, South Korea, and Taiwan, suggesting their dollar reserves could circulate through mechanisms linked to the Federal Reserve's FIMA line. French banks, specifically BNP Paribas, Credit Agricole, and Société Générale, represent an important part of this dynamic, managing about 20% of US repo loans.

Hayes pointed out widening French bond spreads and capital outflows from banks as signs of financial pressure. If banks reduce their participation in the repo market, he believes the New York Fed could increase the use of the RPM program, which has already accounted for 39% of Treasury issuances since December.