Arthur Hayes thinks Chinese monetary authorities might be preparing to flood the nation’s economy with credit, bolstering Bitcoin and the broader cryptocurrency market.
“Let’s look at how the Middle Kingdom is about to throw gasoline on the raging fire that is the incipient crypto bull market,” the BitMEX co-founder said in a blog post on Monday.
Hayes outlined various factors that could prompt China “to flood the world with yuan credit.” In his blog post, he outlined how this influx of capital could boost Bitcoin.
The interplay between the U.S. dollar, Chinese yuan
The Maelstrom CIO and former BitMEX CEO outlined how U.S. monetary policy creates more favorable conditions for Chinese authorities to issue “immense amounts” of new credit to its beleaguered property sector.
He described recent U.S. policy as “weakening the dollar by issuing more Treasury bills.” He said this impact is now evident with the decline of the dollar index, DXY, throughout November.
Hayes argued that the weaker dollar gives Chinese authorities more room to press the yuan money printer. “Even though China is going nuts with money printers going brrr, relative to the dollar, the yuan will at the very least be flat, and it might even appreciate,” he added.
Hayes said that conditions will develop where the yuan will strengthen as the dollar continues to weaken. “This gives China the wiggle room to dramatically increase the amount of onshore yuan credit without weakening currency,” he added.
The influx of capital could benefit the bitcoin.
Hayes said this global monetary dynamic could benefit Bitcoin and the cryptocurrency market. “If China is printing yuan, it will make its way into the global markets and support the prices of all 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 a proxy. “If there is a way to move cash from the mainland to Hong Kong legally, bitcoin will be one of many risk assets that will be purchased,” Hayes added.
Secondly, he said that with “plentiful yuan credit,” global demand for dollar credit and liquidity will fall. “Given that 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,” he added.
The BitMEX co-founder concluded that because this forecast favors risk assets, he plans to focus on crypto investments instead of U.S. Treasury bills.
“I will continue moving money out of T-bills and into crypto because I want to get in now before it becomes apparent through the data that China’s money printer is going be,” he added.