Arthur Hayes: The market will see a strong rebound, it's time to increase the position of Bitcoin and AltCoins.

Original Title: Group of Fools

Original by Arthur Hayes

Original compilation: Ismay, BlockBeats

Although I still believe in the effectiveness of the solution, it seems that the central bank scammers who control the Group of Seven (G7) idiots have chosen to make the market believe that the interest rate differential between the yen and the US dollar, euro, pound, and the maple (Canadian) dollar will narrow over time. If the market believes in this future state, it will buy yen and sell other currencies. Mission accomplished!

It is important to note that the policy interest rate of the Bank of Japan (BOJ) (in green) is 0.1%, while the interest rates in other countries are around 4-5%. The interest rate differential between the local currency and foreign currency fundamentally drives the exchange rate. From March 2020 to early 2022, everyone was playing the same game. As long as you stay at home, get the flu, and receive the mRNA vaccine, you will get free money. When inflation becomes so severe that the elites cannot ignore the pain and suffering of the common people, the central banks of the G7 countries, except the Bank of Japan, are actively raising interest rates.

The Bank of Japan cannot raise interest rates because it holds over 50% of the Japanese government bond (JGB) market. When interest rates fall, JGB prices rise, making the Bank of Japan appear solvent. However, if the Bank of Japan allows interest rates to rise, JGB prices will fall, and this highly leveraged central bank will suffer catastrophic losses. I have done some horrifying mathematical calculations for readers in 'The Easy Button'.

That's why if the decision to narrow the interest rate differential is made by the decision-makers of the G7, the only choice is for central banks with 'high' policy interest rates to drop them. In traditional central bank theory, it is beneficial to lower interest rates if inflation is below the target. What is the target?

For some reason, I don't know why, every G7 Central Bank has an inflation target of 2%, regardless of differences in culture, rise, debt, demographics, etc. Is the current inflation rate soaring past 2%?

Each colored line represents the inflation target of different central banks of the G7. The horizontal line is at 2%. None of the G7 countries' inflation data, even those manipulated and dishonestly reported by governments, is below the target. Putting on my technical analysis hat, it seems that inflation in the G7 has formed a local bottom within the range of 2-3%, and it will then surge higher.

Considering this picture, a traditional Central Bank governor wouldn't cut interest rates at the current level. However, this week, the Bank of Canada (BOC) and the European Central Bank (ECB) cut rates when inflation was above target. This is strange. Is there some financial turmoil that requires cheaper money? There isn't.

The Bank of Canada (BOC) lowered its policy interest rate (yellow) when inflation (white) was higher than the target (red).

The European Central Bank (ECB) has lowered its policy interest rate (yellow) when inflation (white) is above target (red).

The G7 will hold a meeting in a week. The communique after the meeting will be of great interest to the market. Will they announce some coordinated currency or bond market operations to strengthen the yen? Or will they remain silent but agree that all other countries except the Bank of Japan (BOJ) should start cutting interest rates? Stay tuned!

The big question is whether the Federal Reserve will start cutting interest rates so close to the November U.S. presidential election. Normally, the Fed does not change policy when the election is approaching. However, normally favored presidential candidates do not face potential imprisonment, so I am prepared to adjust my thinking accordingly.

If the Federal Reserve cuts interest rates at the upcoming June meeting and their preferred adjusted inflation indicator remains higher than the target, the USD/JPY exchange rate will plummet, which means the yen will strengthen. Considering 'Slow Joe' Biden's slump in public opinion polls due to rising prices, I don't think the Fed is prepared to cut rates. It's clear that ordinary Americans are more concerned about the rising cost of vegetables rather than the cognitive ability of the elderly candidate seeking re-election. Fair to say, Trump is also a 'vegetable' because he likes to eat McDonald's fries and watch the show 'Shark Week'. Nevertheless, I still believe that rate cuts would be political suicide. My baseline expectation is that the Fed will maintain its current policy.

By June 13th, when these amateurs sat down to enjoy a sumptuous meal funded by taxpayers, the Federal Reserve and the Bank of Japan had already held their policy meetings for June. As I mentioned before, I don't expect any changes in the monetary policies of the Federal Reserve and the Bank of Japan. Shortly after the G7 meeting, the Bank of England (BOE) will also hold a meeting. Although the market widely expects its policy interest rate to remain unchanged, given the rate cuts by the Bank of Canada and the European Central Bank, I think we may have an unexpected cut. The Bank of England has nothing to lose. The Conservative Party is expected to suffer a devastating defeat in the next election, so there is no reason to go against the orders of its former colonial rulers in order to control inflation.

Leave the turbulent area

This week, the rate cuts by the Bank of Canada and the European Central Bank kicked off the June central bank policy changes, which will free cryptocurrency from the doldrums of the northern hemisphere summer. This is not the fundamental situation I expected. I thought the fireworks would ignite in August, when the Federal Reserve holds the Jackson Hole symposium. That's usually where sudden policy changes in the autumn are announced.

The trend is apparent. The Central Bank on the edge is beginning a loose cycle.

We know how to play this game. This is a game we've been playing since 2009, when our savior Satoshi Nakamoto gave us the weapon to defeat the demon of TradFi.

Go long Bitcoin, then other alts.

The macro environment has changed, relative to my benchmark, so my strategy will change accordingly. For those asking whether to launch their token for the Maelstrom portfolio project now or later, my answer is, start now!

For the surplus synthetic US dollar cash I hold (e.g. USD from Ethena, USDe) and earning a generous annual yield, it's time to redeploy it on promising altcoins. Of course, I will inform the readers what they are after I buy them. But one thing is certain, the encryption bull market is awakening and about to pierce through the disguise of the extravagant central bank governors.