Arthur Hayes believes that China’s monetary authorities are preparing to pump credit into the country’s economy, which in turn will strengthen Bitcoin and the wider cryptocurrency market.
“Let’s see how the Middle Kingdom throws gasoline on the raging fire of the nascent cryptocurrency bull market,” the BitMEX co-founder said in a blog post on Monday.
Hayes described a confluence of factors that could lead China to “flood the world with yuan credit.” He explained in his blog post how these capital inflows could push Bitcoin higher.
Interaction between the US Dollar and the Chinese Yuan
Maelstrom CIO and former BitMEX CEO explained how U.S. monetary policy is creating more favorable conditions for Chinese authorities to issue “huge amounts” of new credit to the beleaguered real estate sector.
He described recent U.S. policy as “weakening the dollar by issuing more Treasury bonds.” He said the impact was now evident with the dollar index DXY falling throughout November.
A weaker dollar gives Chinese authorities more room to pressure yuan issuers, Hayes argued. “Even if China goes crazy with its money printers, the value of the yuan against the dollar will remain at least unchanged and may even appreciate,” he added.
Hayes said that as the dollar continues to weaken, a situation will develop where the yuan will actually strengthen. “This gives China room to dramatically increase the amount of yuan credit in the region without weakening the currency,” he added.
Capital Inflows Could Benefit Bitcoin
These global currency dynamics could benefit Bitcoin and cryptocurrency markets, Hayes said. “If China were to print yuan, it would go global and support prices of all types of risky assets,” the BitMEX co-founder added.
First, he said capital could flow into risk assets from mainland China, using Hong Kong as a proxy. “If there were a legal way to move cash from the mainland to Hong Kong, Bitcoin would be one of many risky assets to buy,” Hayes added.
Second, he said “abundant yuan credit” would reduce global demand for dollar credit and liquidity. “Given that the dollar is the world’s largest financing currency, if credit prices fall, all fixed supply assets such as Bitcoin and gold will rise in dollar fiat terms,” he added.
The BitMEX co-founder concluded that he plans to focus on investing in cryptocurrencies instead of investing in U.S. Treasury bonds, as these forecasts favor risky assets.
“We will continue to move money from government bonds to cryptocurrencies from now on before the data makes clear that Chinese currency printers are boiling over,” he added.
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