Arthur Hayes: interest difference between Yen and Dollar can crash both Bitcoin and global stock markets in the next few weeks

A new week, a new warning from Arthur Hayes, it seems. After the Federal Reserve decided last night to cut US long-term interest rates by 50 basis points, crypto markets reacted positively as expected.

At the time of writing, Bitcoin is trading for $62,500.

Carry trade

However, Arthur Hayes, the crypto billionaire who is bound to receive a prize for best short-term forecasts of the Bitcoin price this year, has his own opinion looks worried at the differences between the interest rates on the Yen and the Dollar. He warns for an imminent Bitcoin crash because interest rates on the Yen are rising while those on the Dollar are falling.

During a crypto-conference in Singapore, Hayes said yesterday:

While I think a lot of people are looking forward to a rate cut, meaning that they think the stock market and other things are going to pump up the jam, I think the markets are going to collapse a few days after the Fed’s rates.

Reason for this is the further unwinding of the ‘Yen Carry Trade’

Since 2013, the ‘Yen Carry Trade’ became very popular among Western investors. The logic goes like this. If you know that a certain investment will yield 5% per year (the average profit on the S&P500 over the last twenty years, for example), you borrow Japanese Yen at an ultra-low interest rate and pocket the difference as profit. So, for example, you pay 2% on your loan to earn a profit of 5%. The difference, 3%, is yours.

Arthur Hayes: Fed should not cut the rate.

Co-founder of @BitMEX and chief investment officer of @MaelstromFund, believes that the cryptocurrency market could collapse in the event of a Fed rate cut.

Hayes believes that a rate cut will exacerbate inflation and strengthen the… pic.twitter.com/hIgD3BGckK

— TU_Crypto_News (@TU_Crypto_News) September 18, 2024

In recent years, more and more American investors have been borrowing in Japan (also to invest in Bitcoin), where interest rates have remained very low all the while, while in the United States they had been rising.

Lowering of interest rates

When the Bank of Japan raised interest rates from 0% to 0.25% at the end of July, a lot of borrowed money suddenly became more expensive, causing the Japanese stock market to crash by about 10% the following Monday, the biggest fall since 1987. During that period, Bitcoin from $65,000 to $50,000 before climbing back up.

According to Arthur, many risky investments will suddenly be closed now that the Federal Reserve has lowered interest rates and he expects the Bank of Japan to soon increase interest rates by another quarter. As long as it turns out well.