At a Glance
- The former BitMEX chief, Arthur Hayes, proposes that the Fed’s balance-sheet expansion to support the yen could lift Bitcoin and other crypto prices.
- Hayes cites a January 28 essay and recent Fed actions that suggest a covert intervention is possible.
- Bitcoin has struggled to stay above $90,000, trading near $89,000 as the market watches Fed data.
- Why it matters: Investors will look to the Fed’s balance-sheet reports for clues on future crypto market moves.
Former BitMEX CEO Arthur Hayes argues that a covert U.S. Federal Reserve liquidity injection aimed at stabilizing the Japanese yen could mechanically lift Bitcoin and other cryptocurrencies. His theory, outlined in a January 28 essay titled “Woomph,” suggests that expanding the Fed’s balance sheet could increase dollar liquidity worldwide, weaken the dollar index, and provide fuel for asset price inflation.
Proposed Fed Intervention and Crypto Impact
Hayes describes a scenario in which the New York Fed, working with the U.S. Treasury, creates new dollar reserves to buy Japanese yen. Those yen would then purchase Japanese Government Bonds (JGBs) to strengthen the yen and lower JGB yields, preventing a mass sale of U.S. Treasuries that could spike borrowing costs. He believes that such action would cause “Bitcoin and quality shitcoins to mechanically levitate in fiat terms as the quantity of paper money rises.”
- Fed creates dollar reserves.
- Reserves purchase yen.
- Yen buys JGBs.
- Result: stronger yen, lower JGB yields, reduced U.S. Treasury selling.
- Expected side effect: higher Bitcoin and crypto prices.
Legal Mechanism and Treasury Role
According to Hayes, the Treasury’s Exchange Stabilization Fund and the Fed’s authority to hold foreign currency assets provide the legal framework for this intervention. He writes that the Treasury can tap the New York Fed to manipulate markets, citing the example of “Buffalo Bill Bessent” (a nickname for Treasury officials) who can intervene in currency markets.
Market Signals and Evidence
Hayes points to a “rate check” by the New York Fed on January 23 as potential evidence of sensitivity to a weakening yen. Analysts at QCP Capital noted on January 26 that this action hinted at official concern and made traders defensive. Hayes interprets these moves as the Fed deliberately and publicly telegraphing its intentions.
| Date | Event | Interpretation |
|---|---|---|
| January 23 | Fed rate check on USD/JPY | Sensitivity to yen weakness |
| January 26 | QCP Capital analysis | Defensive trader stance |
| January 28 | Hayes’ essay “Woomph” | Fed could intervene in FX & bond markets |
Current Crypto Market Context
Bitcoin has struggled to stay above $90,000, trading around $89,000 as the market watches for signals from the Fed. Other experts have also looked to Japan for macro direction. Last week, market watcher Michaël van de Poppe suggested that the Japanese Central Bank needed to intervene in the bond markets to keep risk-on assets moving.
Outlook for Investors
Hayes acknowledges that his idea is currently a theory, stating, “What I will present is a theory which the actual flow of money… doesn’t support yet.” He has made his trading contingent on observing the Fed’s balance sheet expand. For crypto investors, the BitMEX co-founder’s analysis frames the upcoming reports on the Fed’s balance sheet as critical data points for judging the market’s next major move.
Key Takeaways
- A Fed balance-sheet expansion to support the yen could lift Bitcoin and crypto prices.
- Hayes’ theory relies on covert Fed intervention in FX and bond markets.
- Market watchers should monitor Fed balance-sheet reports, especially foreign currency assets.
- Bitcoin’s recent struggle above $90,000 underscores the importance of macro signals.
- Investors will weigh Hayes’ theory against other macro-market analyses.
