The Fed cuts interest rates and the yen strengthens, Bitcoin may迎来新一轮bull run

After the summer holiday in the Northern Hemisphere, I went to the Southern Hemisphere for a two-week skiing vacation. Most of the time I was skiing in the backcountry, which required putting skins on the bottom of my skis to ascend. Once I reached the top of the mountain, I removed the skins, adjusted to downhill mode, and enjoyed the powder snow to the fullest. Since this activity consumes a lot of energy, I need to plan my diet reasonably to maintain my physical condition.

My dietary strategy is to combine quickly available energy from sugars with slowly burning "real food". This strategy can be likened to the relationship between price and quantity in monetary policy. At last Friday's central bank meeting, the Fed finally committed to lowering policy interest rates, while the Bank of England and the European Central Bank also indicated that they would continue to cut rates.

This policy shift has led to a general rise in risk assets, but it may also trigger risks associated with yen carry trades. If the three major economies cut interest rates and the yen appreciates, it could have a negative impact on the market. I believe that the negative effects of a rapid appreciation of the yen will outweigh the benefits brought by the interest rate cuts.

From an economic perspective, the Fed should raise interest rates rather than cut them at this time. Since 2020, the U.S. CPI has increased by 22%, the Fed's balance sheet has grown by over $3 trillion, and the government deficit has reached a record high. The U.S. economy is not weak, and GDP is still growing. However, the Fed has chosen to cut interest rates mainly to maintain rising asset prices and make the public feel wealthy.

I expect that in order to offset the impact of the yen's appreciation, the Fed and the Treasury will have to further ease policies and expand the balance sheet. If the yen appreciates rapidly, the Fed may halt quantitative tightening and even restart quantitative easing.

For cryptocurrency holders, the current liquidity environment is extremely favorable: global central banks are cutting interest rates, the U.S. Treasury is increasing liquidity supply, and the Bank of Japan is cautiously raising rates. If the Fed cuts interest rates while inflation is above target and economic growth is strong, they are likely to significantly increase the money supply. This will drive up inflation and be very beneficial for assets with limited supply like Bitcoin.