Arthur Hayes: What does increased US regulation and Hong Kong's embrace of cryptocurrency mean?

Author: Arthur Hayes

Translation: GaryMa, Wu Blockchain (with some modifications)

Last week, I met with my favorite OG volatility fund manager, David Dredge, and a few of his colleagues for a cup of coffee. We started discussing how the Japanese financial market has been performing. The citizens and businesses there have plenty of cash, and inflation is driving them out of low-yield or even zero-yield bank deposits and into the stock and real estate markets.

Then, we talked about the current situation of the encryption market, and David asked me, "So, what's the deal with the SEC's investigation into Coinbase and Binance?"

I replied that this was just another example of the legal financial system trying to restrict capital from leaving the casino. There is a lot of debt to be repaid and the financial system needs as much liquidity to exit as possible. He nodded in agreement. David likes to refer to the fragile legal financial system as the Sharpe world. (This name comes from the Sharpe ratio, which most risk managers consider to be the standard for measuring the "risk" level of investment portfolios - in fact, it is completely unfounded because it focuses on probability possibilities rather than the actual results of investment decisions.)

Then I added that I think what's happening in the US regarding cryptocurrency is actually irrelevant because capital is fungible. (I'll expand on this idea a bit.)

Finally, we talked about the upcoming depreciation of the Chinese yuan. The context of this conversation is our skepticism about the continuous rise of Singapore's residential real estate market. Chinese capital is not concerned about how high property taxes are because the yuan is overvalued and the Singapore dollar is undervalued. Therefore, even if they have to pay 60% tax to the Singapore government, Chinese capital will still view Singapore's real estate as a cheap bank account where they can safely store their wealth.

David continued to say that Beijing will eventually let the yuan depreciate against the yen because Japan is China's true global export competitor. Since the Bank of Japan (BOJ) continued its money printing activities (known as yield curve control YCC), the yen has rapidly depreciated against the US dollar and the yuan, while all other major central banks are raising interest rates and shrinking their balance sheets. Since the outbreak of the pandemic, the People's Bank of China and the Chinese central government have shown relative restraint in printing money, which is why the yuan is so "strong" against the US dollar and the yen.

We briefly discussed a fact that with the global economic slowdown, Chinese exports have started to slow down. The government will soon need to start creating growth to appease its fellow citizens, which means that the People's Bank of China is time to adjust its monetary policy and weaken the yuan against the yen and the dollar. The depreciation of the yuan will help boost China's exports and harm the interests of Japanese competitors.

When I got home, a small idea came to mind. The current market situation reminded me of the summer of 2015. The bear market that began with the Mt. Gox collapse in early 2014 was quite brutal. Volatility and trading volume plummeted, and the sideways price movement was painful and frustrating. The price of Bitcoin hovered around $200 for a long time. But in August 2015, the People's Bank of China suddenly sparked China's interest in Bitcoin, causing it to "oscillate" and depreciate against the US dollar. From August to November 2015, the price of Bitcoin doubled, and Chinese traders drove the market up. I believe similar things will happen in 2023.

Since 2021 (when major Chinese exchanges ceased operations in mainland China), the flow of retail capital from China into the cryptocurrency market has collapsed. The most influential marginal retail buyers have shifted from China to the United States.

Starting from 2020, the US government did something unexpected when deciding how to distribute stimulus packages. Instead of giving money for free to the wealthy who hold financial assets, the government directly distributed money to everyone - both the rich and the poor. For the affluent population (which I will introduce in more detail later in this article, but for now, let's call them households with an annual income of $100,000 to $200,000), many of them actually do not need government assistance because they have not lost their jobs (as they are able to work from home as white-collar workers). They took advantage of this free money and headed straight to the financial markets, enjoying a good time. Meme stocks, cryptocurrencies, NFTs, and other investments were made by US retail investors. As usual, some of these people made enough money to buy Lamborghinis and Richard Mille watches, but the vast majority bought at the market top and got themselves into trouble due to subsequent interest rate hikes.

Now, "TradFi Devil" has brought trouble to some of Satoshi Nakamoto's followers, and the market is panicking about the possibility of US retail investors withdrawing from the cryptocurrency market. I think this concern is misplaced. If you are prompted to sell because of the influence of US institutions, which may feel compelled to sell or stop providing cryptocurrency services to Americans, then you will become another fool who buys at the market peak and sells at the market bottom. Because in Asia, the silent currency war waged by China and Japan to improve their export competitiveness will drive the world's second-largest economy to issue crazy amounts of credit. This credit issuance - printing money - will ultimately weaken the yuan and prompt some wealthy Chinese to move their capital elsewhere. Given the large number of people who make up China's wealthy class, various hard assets will be pushed higher when they want to "exit".

I will cover a lot of topics in this article. I will start by discussing Sharpe World and why the United States will spare no effort to convince its citizens that their capital is "safest" in American financial institutions. Then, I will continue to discuss how the substitutability of capital means that even if wealthy American retail investors find it difficult or impossible to enter the cryptocurrency capital market, the rich in the United States can still easily choose to exit the legal financial system and purchase hard cryptocurrency assets. This will ultimately lead me - and hopefully you - to the conclusion that all the panic about what is happening in the "land of the free" is a waste of mental energy. Then, I will introduce the budding currency war between China and Japan, and how this will transfer some Chinese capital to the cryptocurrency field through the Hong Kong financial market. Finally, I will summarize how I strategically use indiscriminate selling of junk coins as a liquidity entry point for high-confidence "shit projects".

SharpeWorld

David is one of the most outstanding and intelligent derivative traders I have ever met. Every time we talk, I learn something new about market structure. Most of his banking career has been spent in the Asia-Pacific region. During our last coffee meeting, we exchanged stories about our favorite bars in Jakarta. He lived there in the late 80s, and I often visited in the 2010s.

He has a deep understanding of both Eastern and Western economic institutions. Janet Yellen, the US Treasury Secretary, was one of his university professors. He is a member of several central bank advisory committees. Every time we meet, he talks about how he tries to make "the adults in the room" understand that their approach to risk is completely flawed. As I mentioned earlier, he calls it the Sharpe world.

David asked me, "How do humans manage the risk of death?"

你不会做那些你知道肯定会杀死你的事情——即使每件事的死亡概率很小——这会延长你的寿命。" translates to "You won't do the things you know will definitely kill you - even if the probability of death for each thing is small - this will prolong your life.

I thought of many simple things that people do to extend their lifespan:

• Do not smoke
• Do not drink and drive
• Wear a bicycle helmet
• Buckle up
• 
  

If you devoutly follow these simple rules, you can completely avoid preventable deaths and (likely) extend your lifespan. However, humans do not probabilistically evaluate their actions in every instance, determine the likelihood of death, and then take risks, betting that they will not become the tail end of the distribution. For example, the average person riding a bike does not look at a helmet and say, "That thing is too annoying. If I don't wear it today, the probability of dying in an accident is a 3-sigma event (<1% chance). I like those odds." But they don't wear a helmet, and that day happens to be a 3-sigma event, and you can't ask God for another life because you faithfully used a log-normal probability decision model with a ±2 sigma, and therefore took an appropriate risk... you just died.

However, in the "Sharp World", financial institutions gamble on their probability of death and engage in risky activities. They do this largely because they know that when they die on average every 5-7 years, central banks and governments will be there to rescue them. This system will always save the residents of the Sharp World by printing money and depreciating public wealth.

Both the government and financial institutions like the world of Sharp because it is full of rules made by super smart scholars from "elite universities" that tell them what to do and how to do it. Everyone follows the rules, so when things explode, no one can say they did anything rude. Therefore, when the public has to pay to save another heavily regulated financial institution (such as Credit Suisse), they feel uneasy and unfair.

The entire meaning of this currency confidence game is to convince investors to continue buying and holding long-term government bonds - all of which is supported by unproven economic theories disguised as natural laws. As a government, if I can persuade my citizens to delay consumption and invest their savings in me for the long term, then I am a successful and trustworthy national actor. On the other hand, if investors prefer to only provide short-term loans to the government (if any), then the government is not trustworthy and must take unpopular measures (such as high taxes) to pay for welfare.

Sharp has long been instilling this concept in the world's top financiers. If you have taken any university-level finance courses, then you already know about the efficiency frontier and how certain magical assets called government bonds can both increase returns and reduce overall portfolio volatility. Therefore, what portfolio managers need to do is to increase leverage on long-term government bonds, and voila, their returns soar.

US Treasury 10-Year Yield

With the US and developed market bond yields entering a 40-year bull market, everyone thought they were geniuses. People like Ray Dalio became billionaires by going long on bonds multiple times. Whenever the market experiences volatility, they increase leverage because they know the authorities will print money to suppress any form of real price discovery. Dalio calls it the Fair Weather Fund.

But now, with inflation and short-term interest rates experiencing the fastest growth in decades, investors seem to have no reason to hold long-term government bonds. You, the readers, are part of this story. Your retirement plan is managed by public or private pension funds, which are composed of residents of the Sharp world. The law requires fund managers to invest most of your savings in long-term government bonds because... well, because the government says so. As inflation rises, these government bonds will be hollowed out, but the financial institutions in the Sharp world dutifully comply with the regulations and bring their clients' capital to the slaughterhouse, because they need rules! No one in the Sharp world will ever use their own money to buy long-term government bonds.

David has repeatedly emphasized this in his monthly letters. His view is that investors should abandon holding government bonds to reduce volatility and increase returns, as these tools no longer work their magic in low interest rates. Instead, investors should hold stocks, gold, cryptocurrencies, and long-term volatility tail hedges.

Participation and protection," he said. "My fund provides protection by holding long convex derivatives, and as an investor, all you need to do is buy a basket of stocks to participate in the rise.

This chart clearly shows that holding a basket of US Treasury bonds (UST) has been a losing proposition both nominally and in real terms over the past decade.

The red line in the above chart represents the performance of the standard and most commonly used 60/40 investment portfolio, where 60% is invested in stocks and the remaining 40% is allocated to bonds through investment in the Bloomberg US Total Return Index. The blue line is a portfolio that maintains the standard 60% stock allocation but allocates the remaining 40% of assets, which is typically allocated to bonds, to invest 62.5% in stocks and leverage the remaining 37.5% of assets with a LongVol agent by 2 times (i.e. 75% risk exposure). As you can see, over the past decade, the blue investment portfolio with zero bond allocation has outperformed the standard 60/40 investment portfolio by 100%.

This raises an important question: why is your fund manager still holding long-term government bonds? The answer is that the structure of the entire statutory financial system forces - or at least strongly suggests - that holding government bonds is the entrusted responsibility of your pension fund manager. If they do not follow this prescription, they may lose their job, which is definitely the last thing any citizen of the Sharpe world wants to see. In the world of Sharpe, being a mediocre puppet, earning millions of dollars a year, constantly sucking your clients' blood, and following the rules is the norm.

But to some extent, once you lose enough client funds, your clients will demand that you change your strategy. And this is exactly the problem that central banks around the world are facing. Faced with persistent inflation, bank failures, and the strong performance of alternative hard assets such as gold and bitcoin (which will maintain or increase their purchasing power over time), how do you convince investors to continue holding government bonds that lose money?

The reality is that there is no convincing reason for investors to stick to such a failed bet. Therefore, governments have to force investors to sell - the usual practice is to set up barriers to prevent capital from exiting the financial system. However, this is a bit tricky for the United States, because if it were to impose explicit capital controls that affect cryptocurrencies or any other assets outside the system, the dollar would no longer be the global reserve currency due to the closure of its capital account. However, it seems that the United States has already realized that if acquiring crypto assets becomes painful and expensive, most of the wealthy and below may choose to give up, as their attention span is short and they are attracted to various social media and entertainment content. Is it chasing instant gratification or focusing on long-term considerations?

The United States is very keen on supporting the Sharp World because it is the biggest beneficiary of the Sharp World's existence. American universities are the centers of education in the Sharp World. These people are scattered around the world to ensure that everyone adheres to a global financial system that continues to elevate the US dollar, long-term government bonds, and major currencies (such as JPMorgan Chase, Goldman Sachs, Citibank, etc.) to a high position in the global financial system. Given that the United States stopped manufacturing things decades ago and instead decided to export financial engineering, it makes sense for the United States to continue to ensure that everyone adheres to the rules of the Sharp World. When this situation is threatened, the entire system will unite and take necessary measures to ensure that capital never leaves.

Substitutability

The population of the United States accounts for about 4% of the world's population. This is only a small piece of the pie, but these 4% of people are relatively wealthy compared to all other people in the world. That's why we, as investors, care about how this small group of people uses their money.

However, these wealth are not evenly distributed among the American public, but highly concentrated at the top. 70% of America's wealth is held by 10% of Americans.

Most Americans are penniless and have nothing to do with the global capital market. You may argue that casinos make a lot of money from the poor. My answer is that although the casino is full of desperate gamblers who are eager to get rich quick, the real profits and quarterly income are earned in the private rooms upstairs, where the rich rule. You cannot rely on people who play penny slot machines to build places like Las Vegas, Macau, Monaco, and so on.

Setting aside the wealthiest 10%, let's focus on the next level of the American economic ladder: the middle class. As I mentioned before, I define this term as all households with an annual income between $100,000 and $200,000, which represents approximately 25% of the national population.

The importance of this group lies in the fact that when the epidemic broke out, they were likely to be engaged in work that could be done at home. Therefore, when the lockdown and economic stimulus checks arrived, they did not need to rely on government relief funds to make ends meet. They basically had extra income to spend or invest in anything they liked.

It is this group that has driven the surge in registered users for online brokers like Robinhood. It is this group that first attempted the crazy trading of cryptocurrencies in 2020 and 2021.

This group has driven the market up during the pandemic cryptocurrency boom. However, this group is not actually wealthy. They may have some savings, but financial intermediaries targeting the rich do not open accounts for this group. The general affluent belong entirely to the category of retail investors, so their access to cryptocurrency is limited. Coinbase, Kraken, Gemini, Crypto.com, Binance.us, and Robinhood are the main platforms that these retail investors are forced to turn to.

During the last bull market, the valuations of these exchanges and fintech companies were so high because they catered to the needs of the affluent masses, who had a lot of disposable income to invest thanks to the support of the US government. However, without the services of these fintech companies that cater to retail investors, the affluent masses would not have had an easy way to access the global cryptocurrency market.

Let's conduct a small thought experiment. Suppose that due to changes in the regulatory environment in the United States, these fintech companies suddenly have to remove most of the cryptocurrencies from their trading lists, or completely stop providing cryptocurrency trading services (Crypto.com is an example of a recent exit from the US market). This would completely eliminate the wealthy American public, eliminating a seemingly large pool of funds that would otherwise be reinvested in the cryptocurrency market when they feel wealthy. It sounds bad, but it's actually not important.

This group initially got involved in cryptocurrency because of government relief funds. However, the stimulus checks have clearly and deeply triggered inflation, and I don't think the monetary authorities will take this action again in the near future. Instead, the Federal Reserve and the US Treasury will redistribute money for free to the wealthy through interest arrangements on government bonds and central bank deposits. This is their usual way of stimulating the financial markets.

If the government chooses to distribute newly printed currency in the form of interest rather than stimulus checks, these funds will not flow to the wealthy masses as they have little savings. Instead, these funds will go directly to America's top 10% or even just the top 1% of the wealthy, who hold most of America's wealth. Then, this wealth will flow into various hard assets and value storage methods. Due to their wealth, this 1% of people have a large number of advisors pushing them to adopt various solutions to maximize returns. They are the world's most affluent banking clients. Although they are Americans, they can access any financial asset traded globally, which means that if this wealthy group believes that Bitcoin and cryptocurrencies perform well in an inflationary environment, they can easily purchase them from specialized traders who sell cryptocurrencies to the rich, such as Cumberland, NYDig, and over-the-counter trading desks of domestic cryptocurrency exchanges.

My point is that whether the general wealthy population and the following groups can own or trade Bitcoin or some junk coins is completely irrelevant, despite the confusion that exists in the cryptocurrency market. They are penniless and the government is no longer issuing checks. Even if Robinhood still allows them to trade some kind of junk coin, they do not have enough available funds to purchase. On the other hand, the capital of the rich is more abundant and has global substitutability - thanks to many intermediaries who provide services to American rich and are willing to do anything for a hefty commission.

The Real Trade War

China and Japan are the countries that hold the most US Treasury bonds. This is because they both adopt the same economic model:

1. Reduce the ability of labor unions to organize collectively.

2. Underestimating the domestic currency leads to the improvement of labor productivity flowing towards industrialists and the country in the form of offshore US dollar income.

3. Undervalued currency keeps goods cheap, allowing developed countries to continue outsourcing their manufacturing to other countries.

This is the simple economic model of "Asia". At this stage, the competition between the main exporting countries in Asia is mainly based on price, which is mainly determined by the value of each country's currency. Therefore, Chinese and Japanese people are more concerned about the cross exchange rate of the Renminbi against the Yen, rather than the cross exchange rate of their currency against the US dollar.

So, who is currently the most price-competitive country?

The price difference between USD/JPY and USD/CNY.

From January 1, 2009 to June 12, 2023, I will set the exchange rate of USD to CNY and USD to JPY as 100. As you can see, during this period, the JPY has depreciated by about 50% compared to the CNY, but perhaps the most noteworthy is that the price difference between the two has greatly widened since the outbreak of the COVID-19 pandemic.

Below, I have added CNYKRW (China vs South Korea, white) and CNYEUR (China vs Germany, yellow) to complete the competitive landscape of global exporting powers.

Using this simple standard of measurement, China is 3% cheaper than South Korea, but 25% more expensive than Germany.

The rapid depreciation of the Japanese yen against the Chinese yuan is completely reasonable, as the Bank of Japan has been printing more and more money in an attempt to keep the yield on Japanese government bonds at a certain level. This is known as Yield Curve Control (YCC). After the COVID-19 pandemic, China has not engaged in such large-scale printing of money or credit issuance to artificially fix bond yields at a specific level. Therefore, the 46% depreciation of the Japanese yen against the Chinese yuan since 2009 is completely justified.

CNYJPY Cross Exchange Rate

Chinese goods are more expensive than Japanese goods. This has had an impact on export volume, as recent data confirms.

China's annual export growth rate.

Summer 2022 - As we can see from the chart above, exports collapsed at that time. Then, Beijing gave up overnight and reopened. As people returned to work, exports soared again. This trajectory from depression to prosperity masked the general weakness of global consumption and the weakening of China's competitiveness in commodity prices.

China's manufacturing PMI>50 indicates expansion, <50 indicates contraction.

This chart is similar to the export situation.

China is now fully open and there should be no after-effects. However, exports are currently declining year-on-year, which is not optimistic. At the same time, the yen has depreciated significantly against the renminbi. If the global cake is shrinking, China needs to become more competitive to maintain necessary growth and appease its people. Japan is China's number one competitor (remember, the two countries' economic models are identical). The renminbi must depreciate against the yen to help drive China's economic growth.

The biggest reason for China's need for growth is their significant unemployment problem. Specifically, urban youth unemployment rates exceed 20%. High school and college graduates do not have enough job opportunities.

Unemployment of Chinese urban youth aged 15-24

For those who don't know, graduating from a university in China is a big deal because it's very difficult to get into one. High school students take the so-called "gaokao" exam. If your score isn't high enough, you won't be able to get into a university. The education system places more emphasis on academics and knowledge. Therefore, from the beginning of primary school, children and parents are completely focused on this exam. In such a large country, how do you evaluate who to hire or not? Compared to the West, China relies more on exam scores and university attendance rates as indicators.

In the past 40 years, parents have spent all their energy and money guiding their little ones through the school system, and they have been rewarded. College graduates have found jobs with higher income than repetitive physical labor, moved to cities, and obtained household registration. Success!

But now, after learning a lot of meaningless content that may have destroyed the vitality and joy of childhood, you have graduated from college but cannot find a job. There are a large number of well-educated young people in China, which is something the government cares about very much.

When in doubt, China will adopt policies that support exports and infrastructure projects to promote growth and employment. The supply-side economic measures that have brought China to where it is today are likely to be repeated, even if it means adding more non-productive debt on top of an already massive debt burden. This will require a devaluation of the Renminbi.

In order to devalue the Chinese yuan, the People's Bank of China will encourage credit growth in "good" economic sectors. Semiconductors, artificial intelligence, clean energy, real estate, and others will all receive higher loan quotes. Banks will be instructed to provide a certain amount of RMB loans to these sectors, or else they will be ordered to stop. Whether these companies actually need funding is not important.

With the expansion of credit, the currency may be allowed to depreciate. The People's Bank of China may conduct a one-time shock devaluation, and then guide the renminbi to slowly depreciate. Over time, the exchange rate of the renminbi against the yen will gradually weaken.

China Producer Price Index (white) and Consumer Price Index (yellow)

When both PPI and CPI are negative, the People's Bank of China can relax its monetary policy without worrying about triggering inflation.

Because some high-quality companies do not need these funds, they will "leak" into financial assets (just like the stimulus checks for the general public in the United States). Companies that should produce small parts will eventually obtain loans in various ways and use these loans to speculate in the financial asset market. Most importantly for this article, China's wealthy population - who see what is about to happen - will begin to transfer capital out of China.

In the past, the People's Bank of China may have been concerned about capital outflows, but the accumulation of Western legal financial assets that China "owns" has become a liability rather than an asset. This is because the West has gone from being a friend to an enemy. Who knows what will happen when Western politicians face Chinese capital. It is entirely possible that one day we will wake up and find that some of China's assets have been frozen due to actions that have displeased Western political elites.

China's Foreign Exchange Reserves (in millions of US dollars)

As you can see, there are approximately 30 trillion US dollars of "issues" in China.

A better policy would be to allow wealthy individuals to purchase hard assets such as cryptocurrencies and ensure that these assets are stored in China by trustees they own or control. I have previously predicted and continue to believe that Hong Kong will become a channel for Chinese capital to own cryptographic financial assets. When I say financial assets, I refer to ownership of financial returns on underlying cryptographic tokens or currencies, possibly through funds or derivatives. In this way, Chinese investors sell fiat currency on the national balance sheet and replace it with Bitcoin and other cryptocurrencies. As a collective whole, after such actions, the Chinese nation will have a stronger balance sheet.

This is the process I imagine:

1. Hong Kong allows various asset management companies to offer cryptocurrency-supported exchange-traded funds (ETFs). Let's take Bitcoin ETF as an example.

2. A wealthy Chinese investor converts RMB into HKD in some way. It shouldn't be too difficult, otherwise the Hong Kong real estate market wouldn't be so active.

3. Then, Chinese investors purchase one of the Bitcoin ETFs listed on the Hong Kong Stock Exchange.

4. ETF managers purchase physical bitcoins from global markets and have them held by a licensed custodian in Hong Kong.

5. This Chinese investor now owns an ETF, which is a Bitcoin derivative but not physical Bitcoin. Investors can only participate in the price performance of Bitcoin, but cannot hold Bitcoin itself.

This has solved many problems for China:

1. It provides a channel for wealthy Chinese who want to escape the continuous depreciation of the Renminbi to invest in hard assets. The wealthy feel wise and happy as their capital is "protected".

2. The endpoint of this export is an institution that must comply with any rules set by Hong Kong regulatory agencies, which effectively means that physical bitcoins are controlled by the Chinese government. This is no different from bitcoins held by any ETF or trust listed in the United States ultimately being controlled by the US government.

3. It reduces the amount of Western assets held by the Chinese government. When wealthy Chinese investors sell yuan and buy Hong Kong dollars, the People's Bank of China buys yuan and sells Hong Kong dollars. Since the Hong Kong dollar is basically pegged to the US dollar, the People's Bank of China can engage in this transaction because China has a large amount of US dollar assets. Please refer to the chart of the $3 trillion savings pot above.

For us cryptocurrency holders, this is a great outcome. Chinese cryptocurrency traders returning through Hong Kong's financial channels will reignite the market, while bankrupt American elites are effectively shut out. The beauty of this approach is that the actions of each national state will push other national states to take more similar actions.

China's act of weakening its currency and allowing its loyal comrades to purchase Bitcoin derivatives in response has reduced the amount of Western fixed assets held by the country. The more China is unwilling to use its export income to buy US Treasury bonds or hold any form of US dollar assets, the more the US must strive to ensure that its citizens' capital does not leave the sharp world, as China, the usual buyer of long-term debt, is on strike. This is a positive feedback relationship that should bring glorious returns to the followers of Satoshi Nakamoto.

Trading Strategy

As confusion continues over what kind of cryptocurrency industry (if any) US regulators want, registered companies in the US will stop offering or severely restrict many cryptocurrency trading services. Many different junk coins will no longer be available for sale, and many US-registered financial intermediaries will indiscriminately sell any junk coins that make their compliance departments feel painful on the public market.

Bad emotions + forced selling = lower prices.

I like high-quality, stinky and cheap goods. Some of the dumped garbage coins are definitely worthless - why does an L2 scaling solution need a token? It's puzzling... But there are also some currencies that are actually building technology related to the AI economy. I'm following a specific L1 blockchain project. I will explain my investment thesis in a series of articles that will cover the intersection of AI and cryptocurrency, which will be released throughout the summer.

Due to the critical timing and my inability to predict when certain large cryptocurrency trading companies targeting the US market will cease operations or sell their cryptocurrencies, I must make purchases in batches and not use leverage. Specifically, I will use the volume-weighted average price (VWAP) algorithm to gradually accumulate certain currencies during the summer.

Last weekend was a perfect example. Someone needed to quickly sell a large amount of cryptocurrency and didn't care about the market impact. Great, I took the opportunity to buy some coins at a very low price. But the price may drop another 20% next weekend. My view is that in the face of a serious market decline, I must have absolute confidence in the value of the product and service in order to continue buying. Macro factors (China's imminent devaluation and the Fed and US Treasury's interest payments leading to increased dollar liquidity) are consistent with micro factors (forced selling of junk coins that generate real value), which means I just need to close my eyes and buy.

Many cryptocurrency social media warriors may argue: "Arthur, the market is sideways or falling, but you have been blindly bullish."This is a fair criticism. However, if my timing is not accurate (which is almost certain), I will take slow actions during the bear market accumulation phase and not use leverage. I am confident in the macro outlook and things are developing as I expected, albeit at a slower pace. For readers who engage in short-term trading, I agree that my analysis is almost useless because you have been plagued by false breakouts and severe adjustments.

I don't expect news coverage to get better. Many companies that rely on the prospect of developing a large number of wealthy American retail investors will go bankrupt. Any company that relies on trading fees will suffer losses. There may be more prestigious companies that choose to withdraw because they cannot see the upcoming bright future. When the smell of failure permeates around you, it's hard to imagine the beauty of the next bull market.

One day, the sell-off will stop and we will enter a dreaded period of consolidation. This boring sideways movement will continue until a factor triggers the speculative nature of cryptocurrency traders. I propose a possibility - the impact of a sharp depreciation of the Chinese yuan against the Japanese yen. I will closely monitor the exchange rate between the yuan and yen, as well as China's export data. The lower China's economic growth, the more credit will be issued. Then the currency will depreciate, and capital will be allowed to "flow" into appropriate investment channels. Finally, I hope that the spark that stimulates the cryptocurrency capital market will ignite, and I hope to kick off the autumn market.

Original article link

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia