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“Interchangeable,” a new essay by Arthur Hayes

Cryptocurrencies
В этой статье:

1. Sharpe World

2. Interchangeable capital

3. A real trade war

4. Trading tactics

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The translation of Arthur Hayes’ essay “Fungible”

Any views expressed below are the personal opinion of the author and should not be relied upon to make investment decisions, nor should they be construed as a recommendation or advice to engage in investment transactions

I met over coffee last week with my favorite volatility fund manager named David Dredge. The conversation began with a discussion of how Japanese financial markets are becoming gangster. Local people and corporations have plenty of cash. And a surge in inflation is pushing them out of low-yielding bank deposits into the stock market and real estate market.

Then we moved on to the current state of the cryptocurrency markets. Dave asked me, “So what’s going on with the SEC, why are they going after Coinbase and Binance?”

I replied that this is just another prime example of the fiat financial system trying to save itself. You know, some casinos limit the withdrawal of capital. Well, it’s the same with the Fed.. The U.S. needs to pay off a lot of debt, and the system needs as much liquidity as possible on the way out. 

Dave nodded in agreement. He likes to call the fragile fiat financial system Sharpe World. This refers to the Sharpe Ratio, a tool that most risk managers consider a standard measure of the “riskiness” of a portfolio. By the way, this is actually completely untrue, because the Sharpe ratio looks at probability possibilities, not the actual results of investment decisions.

So, we continued talking about the Fed and what’s happening in the U.S. in relation to cryptocurrency. I said that in fact this whole story is completely irrelevant because capital is fungible (I’ll explain this point in detail later).

Then David and I talked about the impending devaluation of the Chinese yuan. The reason for this conversation was our general distrust of the correct characteristics of Singapore’s current residential real estate market. The authorities there have set a high tax on the purchase of homes by foreigners. But Chinese capital doesn’t care how high that percentage is, because the yuan is overvalued and the Singapore dollar is undervalued. So even though they have to pay 60% tax to the Singapore government, Chinese capital sees real estate in Singapore as a cheap bank account in which they can safely store their wealth.

David further said that Beijing will eventually devalue the Chinese yuan against the Japanese yen (JPY) because Japan is China’s real competitor in global exports. The yen depreciated quickly against the dollar and the Chinese yuan as the Bank of Japan (BOJ) continued to print money. It is building up its balance sheets while all the other major central banks are raising interest rates and shrinking their balance sheets. After COVID, the People’s Bank of China (PBOC) and the Chinese central government showed relative restraint on the money printing front. That’s why the Chinese yuan is so “strong” compared to the dollar and the yen.

We briefly touched on the fact that Chinese exports have begun to fail as the global economy slows. The government will soon have to start stimulating growth to appease its fellow plebeians. This means that it is time for the NBK to adjust its monetary policy and weaken the yuan against the yen and the dollar. A weaker CNY would help increase Chinese exports at the expense of their Japanese competitors.

As I was starting to head home, a little thought surfaced. The current market situation reminds me of the summer of 2015. The nuclear bear market, which began with the collapse of Mt.Gox in early 2014, has been pretty brutal. Volatility and trading volumes collapsed; the sideways chart was excruciatingly long and boring. The price of Bitcoin kept fluctuating at $200 dollars, and it seemed like an eternity. But in August 2015, the People’s Bank of China suddenly provoked a surge of Chinese interest in Bitcoin. The reason was the “shock” devaluation of the yuan against the dollar. From August to November 2015, the price of bitcoin tripled, and Chinese traders spurred the market. I believe something similar could happen in 2023.

As we recall, in 2021, all Chinese crypto exchanges ceased operations in mainland China. Since then, the influx of Chinese retail capital into cryptocurrency markets has stopped. The most influential marginal retail buyer has moved from China to the U.S.

Since 2020, the U.S. government has always done something unexpected. A prime example of this is the distribution of state incentives during COVID. Instead of just handing out free money to wealthy people who own financial assets, the U.S. government gave money to everyone, rich and poor alike. That said, the mass affluent did not actually need government assistance.

In general, the mass affluent is a demographic that I plan to examine in great detail today in this essay. For now, let’s just call them households who make between $100,000 and $200,000 a year. These rich people during the covid didn’t need government assistance because they didn’t lose their jobs. Most of these lucky people were white collar workers who switched jobs from home during the pandemic. So, these people grabbed their spare cash, went into the financial markets, and had a good time. Memcoin stocks, cryptocurrencies, NFTs, etc. were pumped up by American retail investors. As is always the case, some of these rich people made enough to buy Lambos and Richard Mille watches.

Now that the devil at TradFi is causing problems for some Satoshi followers, the market is going crazy. He is panicking about the possible removal of the U.S. retail investor from the cryptocurrency markets. I think such concern is misplaced.. If you are offered to sell off all the crypto, you will be just another sucker who bought at the top and sold at the bottom. Let the U.S.-registered institutions sell off their cryptocurrency, if they really think they should sell or stop providing cryptocurrency services to their citizens.</nbsp;

Why do I think that? Because around the world, in Asia, the silent currency war between China and Japan over export competitiveness will lead to an insane amount of lending in the Middle Kingdom. And this is the second largest economy in the world. Credit issuance (or simply printing money) will eventually weaken the yuan and force some wealthy people from China to move their capital elsewhere.

I will cover many countries in this essay. I’m going to start by discussing Sharpe World and why the U.S. will do whatever it takes to make its subjects believe in a fairy tale. To the tale that capital is “safest” in the hands of U.S. financial institutions. Then I’ll move on to what interchangeability of capital means. I’ll tell you why the American rich will still have access to cryptocurrency markets. Yeah, yeah.. They will stay here, even if it is difficult or impossible for mass retail investors in the U.S. to access the crypto market. The rich will be able to flee the fiat financial system and buy hard crypto-assets.</nbsp;

This will ultimately lead me – and hopefully you – to the conclusion that today’s panic about what’s happening in the US is a waste of mental energy.</nbsp;

Then I will talk about the incipient currency war between China and Japan. And how this will move some Chinese capital into cryptocurrency via Hong Kong financial markets.

And finally, I will summarize by talking about how I am tactically using an undecipherable shiatcoin sale as liquidity at the entrance to make good money on all this dogshit.

Sharpe World

David Dredge is one of the best and smartest derivatives traders I’ve ever met.. Every time we talk, I learn something new about the structure of the market. He has spent most of his banking career in the Asia-Pacific region. At our last meeting, we exchanged stories about our favorite bars in Jakarta. He lived there in the late 1980s, and I visited often in the 2010s.

David is quite closely associated with economic institutions both East and West. Needless to say, one of his university professors was U.S. Treasury Secretary Janet Yellen. David now serves on various central bank advisory committees. Every time we meet, he talks about how he’s tried to make the “adults in the room” realize that they’re looking at the risk completely wrong. As I mentioned earlier, he calls it Sharp’s World.

“How do people manage the risk of death?” – Dave asked me rhetorically.

“You don’t do something you know for a fact that could kill you – even if the probability of death in each case is small – and that lengthens your life span.”

I thought about some simple things many people do to prolong their lives:

  • Don’t smoke.
  • Don’t drink while driving.
  • Wear a bike helmet.
  • Wear a seat belt.

If you rigorously follow these simple rules, you can completely eliminate avoidable causes of death. And (most likely) increase your life expectancy. What people do not do, however, is they do not probabilistically evaluate each of their actions. They don’t mathematically determine the probability of death to see how great the odds are that they won’t end up at the tail end of the distribution. Let me give you a simple example. The average cyclist doesn’t look at his helmet and say, “This shit sucks – and if I don’t wear it today, it will be a 3-sigma event (a <1% chance) that I will have an accident and die. So the chances are slim, you don't have to wear a helmet.. They may not wear a helmet, and the day may end with a 3 sigma event (i.e., an accident). Then the cyclist cannot ask God to give him another life because he obediently used the lognormal probability +/- 2 sigma decision rubric and therefore took responsibility for the appropriate amount of risk…he is just dead.

But in Sharpe World financial institutions play on death probabilities and constantly engage in risky actions. They do this in large part because they know: when they die (on average, it happens every 5-7 years), central banks and governments will be there to bail out. The system will always bail out the residents of Sharpe World by printing money and depreciating public wealth.

The government and financial institutions alike love Sharpe World. It’s a world filled with rules invented by super-duper smart scientists at “elite universities”. These scientists tell them exactly what to do and how to act. Everyone follows the rules, so when things get going, no one can say they did something clumsy. And, consequently, the public is not upset that it has to pay for the bailout of yet another heavily regulated bank failure, a la Credit Suisse.

So we see a monetary game of trust, backed by unproven economic theories, and masquerading as the laws of nature. The point of the game is to keep investors buying and holding long-term government bonds. If I, as a government, can convince my subjects to postpone consumption and invest their savings with me on a long-term basis, then I will be a successful and trustworthy statesman. If, on the other hand, investors prefer to lend to the government only on a short-term basis (if at all), then the government is not trustworthy and must resort to unpopular measures (such as high taxes) to pay for the benefits.

Indoctrination of the world’s leading financiers at Sharpe World begins early. If you’ve taken any university finance courses, you’re already familiar with the efficiency frontier and the fact that there are certain magic assets called government bonds. They simultaneously increase returns and reduce the overall volatility of the portfolio. So all a portfolio manager has to do is add leverage to long-term government bonds, and voila – their yields go up dramatically!

The chart of 10-year U.S. Treasury bond yields:

When the U.S. and developed country bond yields hit a 40-year bull market, everyone thought they were geniuses. People like Ray Dalio have become billionaires many times over simply by purchasing long-term bonds. Every time the market fluctuated, they used more leverage, knowing that the authorities would print money to thwart any opening of the real price. Dalio called it the Fair Weather Fund.

But now, after the fastest rise in inflation and short-term rates in decades, investors have no reason to hold long-term government bonds. And all of you, readers, are part of that story. Your retirement plan is administered by a public or private pension fund made up of Sharpe World residents. Fund managers are required by law to invest most of your savings in long-term government bonds because … well, because the government said so. These are the same government bonds that will be gutted as inflation rises. But the financial institutions at Sharpe World follow the rules faithfully and lead their clients’ capitals to the slaughter because the rules cannot be broken! No one at Sharpe World ever buys long-term government bonds with their own money.

Dave talks about this in his monthly newsletters. His point of view is that investors should refuse to own government bonds. This will reduce volatility and increase returns, because at low rates such instruments can no longer work miracles. Instead, investors should hold stocks, gold, cryptocurrency, and hedge long tails of volatility.

“Participate and protect,” he says. “My fund provides protection by owning positively convex derivatives, and you as an investor should just buy a basket of stocks to participate in growth.”

Dave illustrates his point with the data below:

This chart clearly shows that over the past decade, owning a basket of U.S. Treasury bonds (USTs) has resulted in losses in both nominal and real terms.

The red line in the chart above represents the performance of the standard, most commonly recommended 60/40 portfolio. It has 60% invested in stocks and the remaining 40% allocated to bonds through investments in the Bloomberg US Total Return Index. The blue line is a portfolio that kept the standard 60% capital allocation, but took the remaining 40% of its assets normally allocated to bonds and invested 62.5% of them in stocks, and doubled the remaining 37.5% with LongVol proxies. As you can see, the blue bond portfolio with zero allocation has outperformed the standard 60/40 portfolio by 100% over the last decade.

This raises an important question: why the fuck is your fund manager still holding long-term government bonds? The answer is that the entire fiat financial system is set up to make the manager (or at least convincingly ask him to) buy government bonds. Failure to do so could result in the loss of one’s job, which is the last thing any citizen of Sharp’s World wants. It’s great to be a gutless puppet in Sharp’s World and make millions of dollars a year by constantly screwing your clients and following the rules.

But at some point, when you have lost a lot of your clients’ money, they will demand that you change tactics. And that’s what central banks should be managing. In the face of constant inflation, bank failures, and the high performance of alternative hard assets like gold and Bitcoin (which retain or increase their purchasing power over time with respect to energy), how can you convince investors to keep losing money by holding government bonds?

The reality is that there is no argument strong enough in the world to get investors to marry such a losing proposition. So instead, governments should force investors-which they usually do by simply erecting barriers, and preventing capital from leaving the system. However, it is a little harder to do in the U.S.. Why? Because if they imposed explicit capital controls that affected cryptocurrency or any other asset outside the system, the dollar would cease to be the global reserve currency. Many of his capital accounts would have closed.

But the U.S. has realized a different tactic. If you make access to cryptocurrency painful and expensive enough, most wealthy people will just let it pass them by and do other things.. U.S. universities have become ideological processing centers for the inhabitants of Sharpe’s World. These people are scattered all over the countries. Their job is to make sure everyone sticks to the global financial system, which continues to put up a pedestal of dollars, long-term Treasuries, and big money (JP Morgan, Goldman Sachs, Citibank, etc.. д.). Given that America stopped making things decades ago and instead decided to export financial engineering, it makes sense for the U.S. to continue to make sure that everyone plays by Sharpe World’s rules. When this status quo is threatened, the whole system will close ranks. It will do whatever is necessary to ensure: the capital will never disappear.

Mutual capital

The U.S. population is about 4% of the world’s. It’s a very small piece of the pie, but that 4% is pretty rich compared to everyone else on the planet. That’s why we, as investors, care about what such a small population does with its money.

But this wealth is unevenly distributed among the American masses-it is heavily concentrated at the top. 70% of America’s wealth belongs to just 10% of Americans.

Most of America is poor, but that doesn’t matter when it comes to global capital markets. You might argue that casinos make a lot of money from poor people. My answer is this: while the casino meets desperate players yearning for the easy path to riches, the real money – and that which generates quarterly income – is made by the whales upstairs in private rooms. You can’t build Vegas, Macau, Monaco, etc.. д. on the backs of people playing slot machines.

Setting aside the richest 10% and focusing on the next rung of the American economic ladder: the massively wealthy. As stated earlier, I define this term as households that earn between $100,000 and $200,000 per year. About 25% of the country’s population has such an income.

The important thing about this cohort is that during the COVID epidemic, most of them kept their jobs because they could do them from home. So when the lockdown came and the state started handing out incentives (subsidy), they didn’t need to use that state aid to stay afloat. Essentially, they had extra income to consume or invest in whatever they wanted.

This group sparked a surge of registrations from online brokers like Robinhood. This group first tried crypto trading in 2020 and 2021.

Two spikes in personal savings in the U.S. are due to government stimulus payments. Most of the money was spent between 2020 and 2021, so you can see that the amount of savings is back to the long-term average. Everything broke down again!”

This cohort led to market growth during the COVID cryptoboom. However, in reality, these people are not so rich. They may have some savings. But financial intermediaries who make their money by serving rich people will not open accounts for such a cohort. The massively wealthy fall right into the retail camp and therefore have limited opportunities for easy access to cryptocurrency. Coinbase, Kraken, Gemini, Crypto.com, Binance.us and Robinhood have become the main platforms that these retail investors are forced to turn to.

So we come seamlessly to the reason why these exchanges rose so much during the last bull market. It is that these platforms catered to wealthy people who – thanks to the U.S. government – had a lot of free income to invest. Without the services of such retail-focused fintech companies, the wealthy would be left without easy access to global cryptocurrency markets.

Let’s do a little thought experiment. Suppose that due to changes in U.S. law, these fintech companies must suddenly delist most of the tokens they trade and/or stop offering cryptocurrency trading services altogether. This would completely exclude them from dealing with the masses of rich people from the U.S.. And eliminated a seemingly large pool of capital that could re-buy into the cryptocurrency markets when free money becomes available again. It sounds really bad, but it doesn’t really matter.

The reason this cohort got involved in crypto in the first place had to do with the government handout.. But the payments during COVID were so clearly and deeply inflationary that I do not believe that the monetary authorities will repeat such an “action” again in the near future. Instead, the Fed and the U.S. Treasury will return to handing out free money to the rich through interest on government bonds and central bank deposits. That’s how they usually crush financial markets.

If the government decides to hand out another batch of freshly printed money, but in the form of interest rather than subsidies, it will not reach the mass rich, who have almost no savings. Instead, the money will flow directly to the richest 10%, or maybe even just the 1% of people who own most of the wealth in America. This capital will then find its use in various forms of hard assets and means of savings.. They promote this or that solution in order to get as much profit for their money as possible. They are the most overburdened people in the world. Despite the fact that they are Americans, they have access to all financial assets traded around the world without exception. And that means the following. If a wealthy group comes to the conclusion that Bitcoin and cryptocurrency perform well in an inflationary environment, then they can easily buy them from a dealer who specializes in selling cryptocurrency to rich people. I’m talking about firms like Cumberland, NYDig and over-the-counter (OTC) trading from US registered companies like Coinbase and Kraken.

I’m trying to emphasize the following thing. Despite all the machinations going on in the crypto markets, it really doesn’t matter at all whether the middle class can own or trade in bitcoins or a subset of shytcoins. They are broke, and the government no longer gives out subsidies. Even if Robinhood still allowed them to trade XYZ shiatcoin, they still would not have the available capital to buy it.

The capital of the true rich, on the other hand, is much more abundant. More importantly, it’s interchangeable all over the world – all thanks to the multitude of middlemen who cater to the American rich and will obediently do whatever they’re told as long as they get awesome commissions.

The Real Trade War

China and Japan hold the most U.S. Treasuries of any country. This is because they both use the same economic model:

  1. Decrease workers’ ability to collectively organize.
  2. Decrease the national currency so that productivity gains flow to industrialists and the nation in the form of offshore dollar income.
  3. Decreased currency makes goods cheap, so developed countries can continue to move production of goods to other countries.

It’s a simple “Asia” economic model. The competition between the major Asian exporters at this stage is mainly over price, and the price is largely determined by the value of each country’s currency. As a result, the Chinese and Japanese care more about the CNY/JPY cross than the cross of their currencies against the U.S. dollar.

So who is the most price competitive nation right now?

The spread between USD/JPY and USD/CNY:

I have indexed the USD/CNY and USD/JPY exchange rate at 100 since January 1, 2009. To June 12, 2023. As you can see, the JPY weakened by about 50% more than the CNY over the same period. But perhaps most notable is the fact that the spread between these two assets has widened significantly since COVID.

I have added CNY/KRW (Chinese yuan vs. South Korean yuan) and CNY/EUR below to complete the competitive environment of global exporters. The CNY/EUR pair essentially values Germany as the main EU economy.

China is 3% cheaper than Korea, but 25% more expensive than Germany, using this simple metric.

It makes perfect sense that the yen depreciated so dramatically against the yuan. The Bank of Japan continued to print more and more money, trying to keep the yield on Japanese government bonds at a certain level. This is called yield curve control (YCC). Since COVID, China has not yet been printing money or issuing credit to such an extent as to artificially tie bond yields to a certain level. So it makes sense that the JPY has weakened against the CNY by 46% since 2009.

CNY/JPY cross rate: 

Chinese goods are more expensive than Japanese. Exports have been affected, and the latest data confirm this.

China’s export growth year over year:

The main blow from the COVID lockdowns began in summer 2022 – the chart above shows that exports collapsed just then. Then Beijing abandoned the Zero COVID policy and reopened. Exports rose again as people went back to work. This trajectory from decline to rise has masked a general weakening of the global consumer and a decline in the price competitiveness of Chinese goods.

The China Manufacturing Business Activity Index >50 points, <50 points:

This chart shows the same story as exports

China is now fully open, and the 2022 quarantine should have no lasting effects. However, exports are now falling year on year. This is not good.. And while all this was going on, the JPY weakened a lot against the CNY. If the global pie is shrinking, China needs to become more competitive with its major export competitors to maintain the growth needed to appease its population. Its number one competitor is Japan (remember, they have the same economic models). The yuan MUST weaken against the yen to help China grow.

The biggest reason the Chinese Communist Party needs to grow is because they have a huge unemployment problem.. In particular, unemployment among urban youth exceeds 20%. There are simply not enough jobs for high school and university graduates.

The unemployment rate among Chinese urban youth ages 15-24:

For those of you who do not know: graduating from university in China is important because it is very difficult to get in. High school students take what is called the GaoKao (literal translation: “big test”). If you don’t score high enough, you won’t get into university. China has no preferences for athletes. Therefore, children and parents are completely focused on this test from the moment they enter elementary school. How do you think an employer in such a big country evaluates who to hire and who not to hire? He looks at things like test scores and university grades. It works even harder here than in the West.

For the past 40 years, parents who have spent all their energy and money on educating their only little emperor through the school system have been more than rewarded. University graduates got jobs with higher pay than manual, monotonous factory work. They would move to the city and get a hukou (residence permit). Success!

But now, having spent the liveliness and fun of childhood studying nonsense, you graduate from university and don’t get a job. China has a huge underclass of extremely educated and talented young people. It is literally the Marxist’s worst nightmare to believe that the intellectual bourgeoisie can sow the seeds of revolution if it is not stopped. Xi Jinping is a disciple of Mao and certainly understands that his party must create jobs so that young people can return to work.

When in doubt, China resorts to policies supporting exports and infrastructure projects to stimulate growth and employment. The supply-side economic measures that got China to where it is today are likely to be repeated, even if it means accumulating new debt on an already gigantic pile of. This requires a weaker yuan.

To weaken the currency, the NBK will stimulate credit growth in “good” sectors of the economy. Semiconductors, artificial intelligence, clean energy, real estate, etc.. д. will have higher credit quotes. Banks will be instructed to lend a certain amount in yuan to these sectors or something else. It doesn’t matter if these businesses really need capital.

As credit expands, the currency will be allowed to weaken. The NBK could implement a one-time shock devaluation and then slowly steer the Chinese yuan downward, weakening it against the yen over time.

Chinese producer PPI (white) and CPI (yellow) indices:

Since both PPI and CPI are on a negative path, the NBK could soften without fear of spurring inflation.

Since some of this capital is not needed by high-end firms, it will “trickle down” into financial assets (much the same way it happened with subsidies for wealthy Americans). There are various ways in which companies that are supposed to produce gadgets end up with loans and use them to speculate on financial asset markets. And most importantly for this essay, masses of wealthy Chinese – who see disaster coming – will begin to move capital out of China.

In the past, the People’s Bank of China may have worried about capital flight, but the stock of Western fiat financial assets “owned” by China has become a liability rather than an asset. It’s because the West has gone from friend to foe. Who knows what will happen in Western political circles regarding Chinese capital. It is quite possible that one day we will all wake up and see that some of China’s assets have been frozen because of some action that has displeased Western political elites.

Whether you are a democratically elected president, dictator or emperor, politics is about covering your ass (CYA, cover your ass). How does the CYA party treat China’s state-owned foreign assets? It allows the rich to exchange yuan for dollars and buy goods. And if a rich Chinese man is ever robbed of his New York mansion because he is a rich non-white foreigner, that is his problem, not the Party’s.

China’s foreign exchange reserves (in millions. dollars):

As you can see, China has a “problem” of about $3 trillion.

An even better policy would be to let the rich buy hard assets, like cryptocurrency. And then ensure that they are kept in China by the trustees they control or own. I predicted, and continue to believe, that Hong Kong will become the conduit through which Chinese capital will be allowed to own crypto-financial assets. When I say financial assets, I mean ownership of the financial proceeds of the underlying crypto-tokens or currencies. It will probably be done through funds or derivatives, because Beijing has no interest in allowing its voters to actually own technology that provides real economic freedom that is not backed by the state. So Chinese investors are selling the fiat dogshit on the state’s balance sheet and replacing it with bitcoins and other cryptocurrencies. The Chinese nation, seen as one, will have a stronger balance sheet after such actions.

This is how I envision such a flow working:

  1. Hong Kong allows various asset managers to offer exchange-traded funds (ETFs) backed by cryptocurrency. As an example, take the Bitcoin ETF.
  2. A Chinese investor somehow converts CNY into Hong Kong dollars (HKD). It can’t be difficult – otherwise the Hong Kong real estate market wouldn’t be so buoyant.
  3. Then a Chinese investor buys one of the Bitcoin ETFs listed on the Hong Kong Stock Exchange.
  4. The ETF manager buys physical bitcoin in the global market, which is then held by a local licensed custodian in Hong Kong.
  5. The Chinese investor now owns the ETF, which is a bitcoin derivative, but not physical bitcoin. The investor can only participate in Bitcoin price changes, not own the coin itself.

This solves many problems for China:

  1. Gives access to a hard asset for wealthy Chinese who want to avoid the continued weakening of the Chinese yuan. The rich feel smart and satisfied that their capital is “protected.”
  2. The end point of such an exit would be an institution that must follow any rules set by Hong Kong regulators. In essence, this means that physical bitcoins are controlled by the Chinese government. This is no different than how bitcoin held in any U.S. registered ETF or trust fund is ultimately controlled by the U.S. government. Capitalism or communism is one and the same.
  3. This reduces the amount of Western fiat assets owned by the Chinese state. When a wealthy Chinese investor sells CNY and buys HKD, the National Bank of China takes the other side and buys CNY and sells HKD, which is essentially the US dollar because of its peg. The National Bank can carry out these transactions because of the large amount of assets in dollars that China has. Refer to the chart above depicting the $3 trillion piggy bank.

For us cryptohoppers, this is a great result. The return of a Chinese cryptotrader through Hong Kong’s financial tubes will revive the market. In the meantime, America’s broke masses will be effectively shut out of crypto. The beauty is that each state’s actions encourage the other country to do the same.

The simple act of China weakening its currency and allowing loyal comrades to buy bitcoin derivatives in return reduces the amount of Western fiat assets the country owns. The more reluctant China is to buy U.S. Treasuries with its export earnings or hold assets in dollars in any form, the harder the states must work to ensure that the capital of its citizens cannot leave Sharpe World as the usual buyer of long-term debt, China, strikes. This is a positive-reflexive relationship that should bring glorious profits to Lord Satoshi’s loyalists.