Bitcoin is expected to enter a bull run again.

After recently finishing the summer vacation in the Northern Hemisphere, I went on a two-week skiing trip to the Southern Hemisphere. Most of the time was spent backcountry skiing, which requires attaching climbing skins to the bottom of the skis for uphill travel. Upon reaching the summit, I removed the climbing skins, adjusted my gear, and began downhill skiing, fully enjoying the abundant powder snow.

A typical skiing day usually includes 80% uphill skiing and 20% downhill skiing, totaling four to five hours. This activity consumes a lot of energy, and the body needs to burn calories to maintain temperature and balance. The legs, as the largest muscle group in the body, are continuously working throughout the process. My basal metabolic rate is about 3000 kcal, and with the energy required for leg movements, the total daily energy expenditure exceeds 4000 kcal.

To meet the enormous energy required for this activity, a full day's food intake combination is crucial. I will have a hearty breakfast that includes carbohydrates, meat, and vegetables. Breakfast keeps me feeling full, but once I enter the cold forest and start the initial ascent, those energy reserves will quickly be depleted. To manage blood sugar levels, I will prepare some snacks that I usually don't eat. I will have a chocolate bar and syrup every 30 minutes, even if I don't feel hungry. I don't want my blood sugar levels to drop too low and affect my condition.

Relying solely on sugary processed foods is not a long-term solution to energy needs. I also need to consume "real food". After completing a lap, I stop for a few minutes, open my backpack, and eat the food I prepared. I prefer to bring containers with chicken or beef, stir-fried leafy greens, and plenty of white rice.

Pairing periodic sugar peaks with the intake of clean, truly whole foods that burn long-term can maintain performance throughout the day.

This pre-meal preparation method for skiing trips has sparked my thoughts on the relative importance of currency price and quantity. The currency price is like the chocolate bars and syrup I eat, providing a quick boost of glucose. In contrast, the currency quantity is like the "real food" that burns slowly and lasts longer.

At last Friday's Jackson Hole Central Bank meeting, Powell announced a policy shift, and the Federal Reserve finally committed to lowering policy interest rates. Officials from the Bank of England and the European Central Bank also stated that they would continue to cut interest rates.

After the announcement of Powell's shift, risk assets generally rose. The initial positive response from the market is reasonable because if money becomes cheaper, assets priced in fixed supply fiat currencies should rise. However, we ignored one issue: the expected future interest rate cuts by the Federal Reserve, the Bank of England, and the European Central Bank will reduce the interest rate differential between these currencies and the yen. The risks of yen carry trades will reemerge, potentially spoiling the party, unless the amount of money increases in the form of central bank balance sheet expansion.

The USD/JPY exchange rate immediately fell after Powell announced the policy shift. This was expected, as the decline in USD interest rates while JPY rates remained flat or increased was anticipated to narrow the USD/JPY interest rate differential.

If the interest rate cuts by the three major economies lead to the appreciation of the yen against their domestic currencies, the market may react negatively. We are facing a struggle between the positive forces of interest rate cuts and the negative forces of yen appreciation. Considering that the total amount of global financial assets financed in yen exceeds several trillion dollars, I believe the negative impact of rapid yen appreciation will outweigh any benefits from the small interest rate cuts in the dollar, pound, or euro. Furthermore, policymakers at the Federal Reserve, Bank of England, and European Central Bank may realize that they need to ease policies and expand their balance sheets to offset the adverse effects of yen appreciation.

From an economic perspective, the Federal Reserve should actually raise interest rates rather than lower them. Since 2020, the U.S. Consumer Price Index has risen by 22%. The Federal Reserve's balance sheet has increased by more than $3 trillion. The U.S. government deficit has reached record levels, partly because the cost of issuing debt has not yet risen high enough to force politicians to raise taxes or cut spending to balance the budget.

If the Federal Reserve truly wishes to maintain confidence in the dollar, it should raise interest rates to curb economic activity. This would lead to a decrease in prices, but it would also result in some people losing their jobs. At the same time, this would also suppress government borrowing, as the cost of issuing debt would rise.

The United States is a highly financialized economy that requires continuously rising prices of fiat assets for the public to feel wealthy. In practical terms, stock performance is flat or declining, but most people do not pay attention to their actual returns. Nominally rising stocks have also increased capital gains tax revenue in terms of fiat currency. In short, a market decline is harmful to the health of the U.S. financial system. Therefore, Treasury Secretary Yellen began intervening in the Federal Reserve's interest rate hike cycle in September 2022. I believe that Powell, under the direction of Yellen and Democratic leaders, is sacrificing himself by choosing to cut rates when he knows he shouldn't.

The U.S. economy does not crave interest rate cuts, but Powell will provide stimulus. Because monetary authorities are extremely sensitive to any decline in the price of legal stocks, Powell and Yellen will soon provide "real food" in some form, namely expanding the Federal Reserve's balance sheet to offset the impact of the yen's appreciation.

When politics overrides the economy, I am more confident in my predictions. This is because the politicians in power want to maintain their power. They will spare no effort, regardless of economic conditions, to fight for re-election. This means that, no matter what happens, the current Democrats will use all monetary policy tools to keep the stock market rising before the November elections. The economy will not lack cheap and ample fiat currency.

If the yen appreciates rapidly, the Federal Reserve may halt its quantitative tightening plan and reinvest the cash from maturing bonds into U.S. Treasuries and mortgage-backed securities. If the market continues to deteriorate, the Federal Reserve may utilize central bank liquidity swaps and/or resume quantitative easing. Meanwhile, Treasury Secretary Yellen will increase dollar liquidity by selling more Treasury bonds and reducing the balance in the fiscal account.

In the final phase of the third quarter, the conditions for fiat liquidity are very favorable. As cryptocurrency holders, we face the following favorable factors:

1. Central banks around the world, especially the Federal Reserve, are lowering the cost of funds. The Federal Reserve is still cutting interest rates while inflation remains above target and the U.S. economy continues to grow. The Bank of England and the European Central Bank may further reduce interest rates at the upcoming meetings.

2. Treasury Secretary Yellen has promised to issue $271 billion in Treasury bonds before the end of the year and conduct a $30 billion repurchase operation. This will inject $301 billion of liquidity into the financial markets.

3. The U.S. Treasury has about $740 billion in general accounts, which may be used to stimulate the market.

4. The Bank of Japan is extremely concerned about the speed of the yen's appreciation and has indicated that future interest rate hikes will consider market conditions. This suggests that they will not raise interest rates if the market is likely to decline.

For an asset like Bitcoin with a limited supply, if the Federal Reserve cuts interest rates and increases money printing when inflation is above target and economic growth is strong, it could lead to a significant rise in Bitcoin prices.