The dust has temporarily settled after the unwinding of the yen carry trade played out over the weekend and throughout Monday. The Bank of Japan suffered the consequences of forced liquidations that resulted from a 25 bps rate hike that caught many who had become accustomed to the carry trade after more than a decade of ZIRP in Japan off sides. Things were looking pretty grim on Monday as markets sold off violently, but the Bank of Japan came out rather quickly and announced that they will not be hiking rates any more in the near future because they don't want to perturb markets more than they already had.

I don't think the world if out of the woods yet as it pertains to the effects of the Bank of Japan's recent rate hikes. As we've seen in recent months, the reassuring assertions of central banks have a significantly smaller marginal return than they did before 2020. The question that remains is will the central banks and governments of the world allow another liquidity crisis to materialize or will they try to front run the chaos by saying, "Screw it. Let's open up the dam and let the fiat liquidity flow. Price stability be damned." Last Friday's US jobs numbers certainly make it easier for the Fed to make an excuse to lower rates, if they are actually looking for one. Though, what many pundits who were calling for emergency rate cuts during the chaos on Monday don't realize, the Fed lowering rates before the Bank of Japan would only exacerbate the unwinding of the yen carry trade.

To make matters worse in the US, the Treasury had a pretty piss poor week of auctions, particularly on the longer end of the curve, with yesterday's 10-Year and today's 30-Year auctions being described as "abysmal" due to the lack of foreign demand and dealers being stuck with a large chunk of the auction.

These lackluster auctions explain why the Treasury reopened its treasury buy back window for the first time since 2001 a few months ago. They know demand for their fiat debt instruments is waning and will likely continue to wane as the US goes further into debt and further weaponizes the financial rails many foreign buyers of our debt depend on.

This is only one of the levers being pulled by the Treasury to inject liquidity into markets while the Fed keeps interest rates elevated. The other lever they've been pulling for the last 18-months is issuing an abnormally high amount of short-term debt.

All of this is to say that the situation is not looking good... at all. And we may have finally reached the point at which the world is hyper aware of the situation and actively looking to avoid US debt instruments that need to be held for longer than a couple of years. This comes at a time when the US economy is faltering. Unemployment is up significantly over the last 6-months. Most of the jobs that are being filled are government jobs. Commercial real estate continues to roll over. And the US consumer is loaded up with more credit card debt than ever before (10% higher than the pre-COVID peak).

The central planners of the world are more stuck between a rock and a hard place than they ever have been and it's hard to see a way out for them outside of a rapid debasement of their currencies when a liquidity crunch really begins in earnest. The realization that seems to have materialized across global markets has already been massively beneficial for bitcoin and the reaction to the unavoidable liquidity crunch will be even more beneficial. It's already been beneficial because the real smart big money has begun getting into bitcoin in preparation for the debt spiral. It will be beneficial in the future because it will be viewed as suicidal not to seek the safe shores of bitcoin when the money printers begin going brrrr again.

However, this may seem counterintuitive to many people out there who saw bitcoin's price action last weekend and throughout Monday. Those who do not understand bitcoin saw the price dump by 20% and were throwing many "I toldya so's" out on social media and channels like CNBC. "See! Bitcoin isn't a safe haven asset!" These people are overlooking one of bitcoin's key value props as a safe haven asset; it trades 24/7/365 and is extremely liquid. Traditional markets are only open for 35 hours a week. If it becomes apparent that a liquidity crisis is materializing over the weekend and people who need to meet obligations when the markets reopen want to be as prepared as possible they are going to take advantage of this particular property of bitcoin to make sure they have enough USD to meet their obligations. There is no other market in the world that makes this possible. It's a beautiful thing.

As people scramble, sell their bitcoin to cover margin in other parts of their portfolio, and the price dips those of us who aren't levered in the fiat world are able to take advantage of the temporary price decline to smash buy cheaper sats. As it stands right now, bitcoin is only ~6% below where it was this time last week. A very quick recovery considering how bad sentiment was Monday afternoon.

The smart money knows what stands in front of them in bitcoin. It is a long term store of value asset that is extremely liquid, will be there in times of need, and will only see increased adoption as more people wake up to this truly unique utility. This will naturally drive the price higher.

What a time to be alive.

Final thought...

My youngest is my grandfather reincarnated. We can tell due to the fact that his go-to attack is the headbutt.