The entire financial market has been very turbulent recently, and the source of all this turbulence is essentially the inflationary US debt crisis. At this moment, it is the series of chain events triggered by the yen interest rate hike that officially detonated this powder keg. Let's take a look at how Japan has gradually become a global liquidity provider and triggered this Bitcoin crash. Is BTC still a safe-haven asset?
01 Japan's financial market under the negative interest rate environment for 17 years
Japan has maintained a negative or zero interest rate policy for the past 17 years. According to data released by the Ministry of Finance of Japan on August 9, as of the end of June this year, the total debt of the Japanese government, including government bonds, loans and short-term securities, reached 1311 trillion yen, exceeding 1300 trillion for the first time. If the Japanese government chooses to increase the interest rate by 1%, it will have to pay an additional 13 trillion yen in interest. The fiscal revenue of the entire country of Japan for the whole year is only about 70 trillion yen. Therefore, the Japanese government is forced to maintain low interest rates.
Please imagine, if you go to a bank to borrow money and the interest you get is 0, will you choose to borrow money? And your deposit interest rate in Japan is close to zero, will you choose to invest your money in something more risky?
Therefore, a unique group in Japan was born, Mrs. Watanabe. The Mrs. Watanabe phenomenon is a unique phenomenon in the context of Japan's negative interest rate economy. Many Japanese housewives borrow a lot of low-cost yen in Japan's low-interest rate environment, and then invest in international financial assets with high returns to earn the interest rate spread.
Of course, the players of this game are not only housewives like Mrs. Watanabe, but also many local Japanese financial institutions, enterprises, and companies. There are also many foreign financial institutions that are also engaged in such crazy arbitrage transactions. This includes Buffett's Berkshire Hathaway.
Including what I said in the last video, you can borrow some RMB at a low interest rate to eat some risk-free stablecoin arbitrage. You can also see this idea. Of course, now the RMB may appreciate again with the US dollar interest rate cut. Doing this in an environment of unstable exchange rates is a very risky behavior.
Of course, the most fundamental question is how can you earn a profit by holding RMB. I think this is a very difficult thing to do.
Since this is a 0-interest gaming environment, many individuals and large organizations, after weighing the return ratio, will inevitably engage in some leverage behavior to increase their holdings of the Japanese yen, as long as the return is greater than the borrowing interest rate. This is also some of the arbitrage methods we often use in the crypto market DeFi.
So why did the yen panic sell off and fall after the rate hike? In fact, you can see that a lot of the cost-free liquidity in the market is provided by Japan's low-interest funds, especially after the US dollar rate hike.
The surrounding currencies have depreciated compared to the US dollar. If you exchange early, you may be able to maintain arbitrage profits in this environment of sharp appreciation of the Japanese yen. If most of the arbitrage funds are short-term funds, they are invested in products such as US bonds with lower returns.
Leveraged arbitrageurs will instantly turn risk-free returns into massive losses based on leveraged positions due to exchange rate fluctuations. This is unacceptable to many large institutions and individuals who make profits based on risk-free arbitrage. The stampede-like selling of assets is the main factor causing this round of decline.
Therefore, the US economic recession, or the so-called AI economic high for the time being, is not the main factor in this decline, but a concomitant factor. Because the problem of US debt is obvious and long-term. This is a problem based on the society under the fiat currency standard.
02 Let’s take a look at the performance of various asset classes over the past year, taking into account this sharp drop.
Please note that this is not to encourage you to chase high prices, nor is it to recommend you to buy risky assets. This is just for sharing.
Return rate from August 2023 to date: (from August 9, 2023 to August 9, 2024)
BTC:104.81%
S&P 500: 19.06%
Nasdaq 100: 21.79%
CSI 300: -15.95%
Nikkei 225: 8.76%
Let’s take a look at the performance of all asset classes over the past two years.
Here we only do the return rate from August 2022 to date: (the time is from August 9, 2022 to August 9, 2024)
BTC:156.15%
S&P 500: 29.03%
Nasdaq 100: 41.31%
CSI 300: -19.78%
Nikkei 225: 25.09%
03 Is BTC still a safe-haven asset?
Many people say that BTC is no longer a safe-haven asset due to this round of decline. It is indeed not a safe-haven asset for short-term holders. For long-term holders, BTC still and will continue to bring huge returns. The reason why it gradually becomes in line with risky assets is that more short-term speculators enter. (Most people start buying it because they see its rise)
There is a lot of speculative value attached to it. People from traditional finance are also gradually entering the market, which will make it keep up with the pace of global liquidity in terms of attached value, but we have seen a larger increase than other assets, and this increase comes from the intrinsic value line of its belief (I really can't find a better word to describe it), and I firmly believe that it will continue to rise.
Of course, short-term attached value will still hover around it, creating the impression of a speculative asset. You can choose to trade attached expectations, or you can choose to be a long-term believer.
From another data point of view, the number of BTC permanent currency holding addresses has been increasing. Russia has also signed a bill to legalize mining, and a US senator is also striving to make it a strategic reserve. From all aspects of information, even if the information is not passed, it is long-term positive information, which means that our consensus is still expanding at all levels, which will keep our endogenous value line rising.
Of course, will the US really experience an economic recession? Will we really face another financial crisis? I personally feel that the chances are slim. Of course, the most conservative policy is to leave the risk when you sense the risk. Or buy our unsold BTC again and verify its fundamental value when society falls into crisis. I would like to remind you that all assets have bubble cycles.
