Arthur Hayes, as a co-founder of BitMEX, claimed that the Federal Reserve (Fed) may soon print dollars to intervene in Japan's currency and bond markets. He believes that this development will eventually drive up Bitcoin prices, but stated that he has liquidated his leverage positions at Strategy and Metaplanet until evidence confirming his theory is validated.

What happened: Theory of Fed intervention

Hayes suggested in a blog post dated January 28 that after the New York Fed creates dollars, it will convert them into yen through primary dealers like JP Morgan and purchase Japanese government bonds (JGB) to stabilize both currency and bond rates.

He pointed to the decision by the Bank of Japan (BOJ) to keep interest rates unchanged on January 23, despite growing pressure on the yen and JGB market, as evidence that Japanese authorities may have requested support from the U.S.

The former BitMEX CEO stated that the recent inquiries by the New York Fed to Wall Street dealing desks about prices were interpreted as signals of intentional intervention.

He mentioned that for confirmation, he would particularly watch the "Foreign Currency Denominated Assets" item in the Fed's weekly report, H.4.1.

Hayes recently revealed that before the yen volatility intensified, he cut losses on long positions held by former MicroStrategy, led by Michael Saylor, and Japanese-based Metaplanet. Both companies hold Bitcoin as a financial reserve asset.

He stated that he would only re-enter these leveraged Bitcoin proxy trades when the Fed's balance sheet data supports his hypothesis.

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Why it matters: Bitcoin and liquidity

This argument is based on a key relationship that Hayes has tracked. Specifically, it is the tendency for Bitcoin to rise when the Fed's balance sheet expands. If the Fed prints dollars to buy yen and JGBs, global dollar liquidity increases, which has historically shown a correlation with rising cryptocurrency prices.

Hayes wrote that Bitcoin will be "pumped along with the expanding Fed balance sheet", but cautioned traders expecting immediate results. His fund Maelstrom continues to increase its position in Zcash (ZEC) and holds DeFi tokens such as Ethena (ENA), Ether.fi (ETHFI), Pendle (PENDLE), and Lido (LDO). He added that if the argument for intervention proves correct, he plans to buy more of these assets.

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