Bitcoin bull run is here again: The impact of Fed rate cuts and a stronger yen

I just finished a two-week skiing vacation in the Southern Hemisphere, spending most of the time backcountry skiing. This activity requires a lot of energy, with daily energy expenditure exceeding 4000 calories. To maintain my stamina, I adopted a special dietary strategy, pairing quickly digestible sugars with slowly burning "real food".

This dietary strategy can be likened to the importance of price and quantity in monetary policy. The price of money is like sugar that provides quick energy, while the quantity of money is like "real food" that burns sustainably. Last Friday, Powell announced a policy shift at the Jackson Hole meeting, and the Fed pledged to lower interest rates. Officials from the Bank of England and the European Central Bank also stated that they would continue to cut rates.

The market reacted positively to this news initially, with risk assets generally rising. However, this may reduce the interest rate differential between major currencies and the yen, reigniting the risk of yen carry trades. Unless the money supply is increased by expanding the balance sheet, this could undermine market sentiment.

Currently, the Fed has committed to cutting interest rates even when the economy does not need it, similar to me eating candy to prevent blood sugar from dropping when I'm not hungry. This is to maintain the prosperity of the financial markets, as the U.S. economy is highly dependent on continuously rising asset prices.

I expect that, with the negative impact brought by the appreciation of the yen, the Fed, the Bank of England, and the European Central Bank will have to further ease policies and expand their balance sheets. This will create a favorable environment for risk assets, especially for assets with limited supply like Bitcoin.

In the key period of the next few months, I am optimistic about the strength of risk assets. Global central banks are cutting interest rates, the U.S. Treasury is increasing liquidity, and the Bank of Japan is concerned about the appreciation of the yen, all of which will support the market. Although there is uncertainty in the stock market, the increase in money supply will significantly drive up the price of assets with limited supply, such as Bitcoin.