Arthur Hayes believes that Chinese monetary authorities could be preparing to flood the country's economy with credit, boosting bitcoin and the broader cryptocurrency market as a result.
โLet's take a look at how the Middle Kingdom is about to pour gasoline on the raging fire that is the nascent cryptocurrency bull market,โ the BitMEX co-founder said in a blog. mail on Monday.
Hayes described a confluence of factors that could lead China to "flood the world with yuan credit." On her blog, she described how this influx of capital could end up driving bitcoin.
Interaction between the US dollar and the Chinese yuan
The CIO of Maelstrom and former CEO of BitMEX described how US monetary policy is creating more favorable conditions for chinese authorities issue "immense amounts" of new loans to its beleaguered real estate sector.
He described recent US policy as "weakening the dollar by issuing more Treasury bills." He said the impact of this is now evident with the dollar index falling, DXYthroughout November.
The weaker dollar gives Chinese authorities more room to pressure the yuan money printer, Hayes argued. "Although China is going crazy with the money printer, relative to the dollar, the yuan will at least remain stable and might even appreciate," she added.
Hayes said conditions will develop where the yuan will actually strengthen as the dollar continues to weaken. "This gives China the leeway to dramatically increase the amount of domestic yuan credit without the currency weakening," he added.
Capital influx could benefit bitcoin
This global monetary dynamic could benefit Bitcoin and the cryptocurrency market, Hayes said. "If China prints yuan, it will make its way into global markets and support the prices of all types of risk assets," the BitMEX co-founder added.
Firstly, he said there could be an influx of capital into risk assets from mainland China, using Hong Kong as agent. "If there is a way to legally move cash from the mainland to Hong Kong, bitcoin will be one of the many risk assets to be purchased," Hayes added.
Second, he said that with "abundant yuan credit," global demand for dollar credit and liquidity will fall. "Since the dollar is the world's largest funding currency, if the price of credit falls, all fixed supply assets like bitcoin and gold will rise in dollar fiat price terms," โโhe added.
The BitMEX co-founder concluded that because this forecast favors risk assets, he plans to focus on cryptocurrency investments instead of investing in US Treasury bills.
"I will continue to take money out of Treasuries and into cryptocurrencies because I want to get in now before it becomes clear through the data that China's money printer is working brrrrr," he added.
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