Global monetary policy shift, crypto market is about to warm up

In the current macroeconomic situation, cryptocurrency investment strategies are changing. As some central banks begin to cut interest rates, the crypto market is expected to recover from the summer slump, signaling that a new bull market is about to arrive. Since 2009, Bitcoin and other cryptocurrencies have been powerful tools against the traditional financial system. In the context of the changing macro environment, investors may consider actively going long on Bitcoin and other crypto assets, while new projects can seize the opportunity to issue tokens, as the market may usher in a strong rebound.

The USD-JPY exchange rate is one of the important macroeconomic indicators. There was a viewpoint that the Federal Reserve could exchange newly printed dollars for yen with the Bank of Japan in unlimited quantities to strengthen the yen. Although this approach may be effective, the major central banks currently seem to choose to let the market believe that the interest rate differential between the yen and other major currencies will narrow over time. If the market believes this expectation, it will buy yen and sell other currencies.

To achieve this goal, major central banks must lower their high policy interest rates. Notably, the Bank of Japan's policy interest rate is only 0.1%, while other countries' rates are around 4-5%. The interest rate differentials between currencies fundamentally affect exchange rates. From March 2020 to early 2022, countries generally implemented loose monetary policy. When inflation became severe enough for the elites to ignore, major central banks, except for Japan, began to actively raise interest rates.

The Bank of Japan cannot raise interest rates because it holds over 50% of Japanese government bonds. If the Bank of Japan allows interest rates to rise, bond prices will fall, and this highly leveraged central bank will suffer huge losses. Therefore, to narrow the interest rate differential, the only option is for other central banks to lower their rates. Traditional theory holds that when inflation is below target, rate cuts are justified. However, currently, the inflation rates of major economies are all above the 2% target.

From a technical analysis perspective, inflation in major economies seems to have formed a local bottom in the range of 2-3%, and may then rise further. Considering this, according to traditional practices, central banks should not lower interest rates at the current level. However, this week, the Bank of Canada and the European Central Bank lowered interest rates in the context of inflation being above target, which is quite unusual. This may be in response to the issue of a weak yen.

If the yen cannot be strengthened, China may release a depreciated yuan to match Japan's low-priced yen. This could lead to a sell-off of U.S. Treasury bonds, threatening America's financial dominance.

In the coming week, the G7 will hold a meeting. The post-meeting statement will attract significant attention from the market. Will they announce coordinated actions to strengthen the yen? Or will they default to the idea that other countries besides Japan should begin to cut interest rates? These are all worth paying attention to.

The key question is whether the Federal Reserve will cut interest rates as we approach the presidential election in November. Typically, the Federal Reserve does not change policy before an election. However, given the current unusual circumstances, we need to keep an open mind. If the Federal Reserve unexpectedly cuts rates at the June meeting, the USD/JPY exchange rate could drop significantly. However, considering the impact of inflation on the election, the likelihood of the Federal Reserve cutting rates is low. My basic expectation is that the Federal Reserve will maintain its current policy.

The Bank of England is about to hold a meeting. Although the market generally expects the policy rate to remain unchanged, the possibility of an unexpected downward adjustment cannot be ruled out, considering the rate cuts in Canada and Europe.

This week's interest rate cuts by the Bank of Canada and the European Central Bank have opened the curtain on changes to monetary policy in June, which could help crypto markets shake off the summer slump. The trend is clear: peripheral central banks are beginning a new round of easing.

We are familiar with the rules of this game. This has been the game we have been playing since 2009, when Satoshi Nakamoto gave us the tools to counter the traditional financial system.

It is now worth considering going long on Bitcoin, followed by other cryptocurrencies. The macro environment has changed, so investment strategies need to be adjusted accordingly. For those projects considering issuing tokens, now might be a good time.

For investors holding excess synthetic USD stablecoins and earning high yields, it is now worth considering redeploying some funds into promising cryptocurrencies. The crypto bull market is awakening and may soon break through the central banks' policy disguise.