Arthur Hayes, chief investment officer of crypto family office Maelstrom, said traders should stop focusing on Federal Reserve Chair Kevin Warsh's hawkish comments and instead watch the euro-yen exchange rate for early signals of shifting dollar liquidity conditions in the market.
In an essay published Thursday, Hayes argued that mounting funding stress at French banks will eventually force the Federal Reserve to inject money into the US repo market, a development he sees as supportive for Bitcoin and cryptocurrencies more broadly.
The EUR/JPY Signal
Hayes identified the EUR/JPY exchange rate as his primary liquidity gauge, predicting it will fall to 140 or lower by next June from near 185 at the time of writing. He tied this forecast to Treasury Secretary Scott Bessent's efforts to weaken the euro and strengthen Asian currencies to boost US export competitiveness.
Hayes suggested the strategy involves routing capital through the Federal Reserve's FIMA repo facility rather than having Japan, South Korea, and Taiwan sell dollar holdings directly. He noted that Bessent has already sold euros for yen through the Treasury's Exchange Stabilization Fund.
French Banks and Repo Market Stress
Hayes identified French banks as a potential vulnerability point. BNP Paribas, Credit Agricole, and Societe Generale collectively handle roughly one-fifth of US repo lending, according to Hayes. He cited widening French government bond spreads and capital outflows from French banks as signs that foreign lenders are pulling back from repo lending.
If those banks reduce repo lending, Hayes expects the New York Fed to increase reliance on its RPM program, which currently purchases 39% of T-bill issuance. The program has expanded the Fed's balance sheet by approximately $22 billion monthly since December, Hayes noted, with potential to climb toward $100 billion if Treasury bond purchases accelerate.
Bitcoin Market Context
Hayes dismissed recent hawkish Fed commentary, stating that Maelstrom's portfolio maintains Bitcoin as a core long-term holding. Bitcoin experienced volatility following Fed Chair Warsh's Jackson Hole speech about a week prior, dropping $3,000 within hours after Warsh emphasized the Fed's commitment to its 2% inflation target. The cryptocurrency subsequently fluctuated between roughly $76,500 and $79,000, though it recovered to trade near $78,000 at the time of the article, with 30-day gains of approximately 22%.
