Bitcoin recently dropped in price but is showing signs of recovery.
Arthur Hayes says now might be a good time to buy Bitcoin.
The Bank of Japan's decision not to raise interest rates appears to be strengthening the Japanese Yen.
He believes Bitcoin's price is closely linked to the Japanese Yen and could rally strongly very soon.
Bitcoin hasn't been very bullish over the last few months. The cryptocurrency has been down by around 22% since its mid-March high of $73,800, especially after crashing by around 30% between 29 July and 5 August.
While Bitcoin narrowly escaped a crash below $49,000, and some analysts believe that an even harsher crash is inbound, BitMEX co-founder Arthur Hayes thinks it may be time to "buy the f*cking dip”.
But what does he mean by that?
Earlier in the month, the Bank of Japan's Deputy Governor Shinichi Uchida announced that the central bank would not raise its interest rates despite the country's instability.
This sent ripples through the market, considering the central bank’s tendency to pump interest rates to combat inflation.
Immediately after this positive announcement, Japan's financial markets (which suffered from the 5 August crash) started to recover, making up for all of their lost ground.
Furthermore, the USD/JPY exchange rate also climbed back above 146, which was an apparent strengthening of the Yen against the dollar.
Similarly, Bitcoin, which had dipped to $49,000 earlier in the week, was back at $56,000.
Buy the f*cking dip
In this case, BitMEX co-founder Arthur Hayes believed things were looking good for Bitcoin and took to Twitter to say, "BTFD! 'cause the BOJ caved."
The acronym "BTFD" is crypto community slang for "buy the f*cking dip."
Hayes wrote an elaborate article titled "Spirited Away," in which he explained his rationale for Bitcoin rallying and the implications of the BOJ's actions.
According to the BitMEX executive, raising the interest rates above 0% effectively collapsed the yen “carry trade.”
For some context, this involves institutions buying the Japanese Yen at extremely low rates to invest in USD assets with the hopes of higher returns.
Now, as the cost of borrowing is higher, many of these highly leveraged bets were forced to close up as the Yen strengthened.
But things go further than this.
Hayes also suggested that the US might be forced to inject liquidity into the market if the BOJ's actions continue to have this effect on the world's financial markets.
In essence, Hayes believes that Bitcoin tends to copy the Japanese Yen, especially during aggressive moves.
Therefore, if the Yen continues to strengthen against the Dollar, Bitcoin (and traditional stocks) are set to follow.
Furthermore, given the BOJ's latest decision, Hayes believes that the BOJ is unlikely to raise its interest rates, which could be a bullish sign for Bitcoin.
Instead, the central bank appears to be content with keeping the Yen in the 140-160 range against the dollar, which is the perfect environment for Bitcoin's price to rise.
“If the setup is convex-Bitcoin, I will aggressively add positions as we have reached the local bottom,” Hayes said. “If the setup is correlated-Bitcoin, then I will sit on the sidelines and wait for the eventual market capitulation.”
In either case, Bitcoin is set to rally strongly very soon.
“That’s as prescriptive as I can be at the moment." Hayes concluded, "As always, these trading days and months will define your returns for this bull cycle.”
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