Arthur Hayes: The unwinding of the yen carry trade could lead to a global market collapse; crypto investors should be cautious about using leverage

Arthur Hayes, co-founder of BitMEX, said in a post yesterday that the unwinding of the yen carry trade could cause the entire global financial system to collapse, speculating that Yellen will take action before the opening of Asian trading next Monday (August 12) at the latest. Hayes analyzed the possible responses of the Bank of Japan (BOJ) and the potential impact on global markets, especially the impact on US stock and bond markets. He predicted that the US Treasury and the Federal Reserve may provide invisible assistance through central bank currency swaps (CSWAP) and other means to ease market pressure. The unwinding of the yen carry trade will lead to a coordinated global sell-off of all financial assets because yen debts must be repaid, and yen debts are becoming increasingly expensive. Which force is stronger actually depends on the speed of the carry trade unwinding. This is something we cannot know in advance. The only observable impact is the correlation between Bitcoin and USD/JPY. If Bitcoin trades in a convex situation, that is, when USD/JPY strengthens or weakens significantly, Bitcoin will rise in both cases, then if the yen becomes too strong and the liquidity provided by the US Treasury is sufficient, the market will be expected to be rescued; if Bitcoin falls with the strengthening of the yen and rises with the weakening of the yen, then Bitcoin will trade in sync with the TradFi market. This is Bitcoin in a correlated trend, which indicates that the market has little confidence in the rescue measures and investors need to operate with caution. Assuming the former situation, I will actively increase my position because we have reached a local bottom. But if it is the latter, then I will wait for the final market capitulation. The most important assumption is that the Bank of Japan will not reverse course and reduce the deposit rate to 0% and resume unlimited purchases of Japanese government bonds. If the Bank of Japan sticks to the plan it laid out at the last meeting, the carry trade will continue to be unwound. This is the best decision I can make at this time. As usual, these trading days and trading months will determine your returns in this bull cycle. If you must use leverage, be sure to use it wisely and constantly monitor your positions. When you have a leveraged position, it is best to always keep an eye on Bitcoin or altcoins. Otherwise, you will face the risk of being liquidated.