"A Golden Opportunity for Bitcoin" … Besant's Gamble Shakes the Forex Market

[Block Media Reporter James Jung] Be friendly with friends, and even friendlier with enemies. The U.S. adversary is China. Therefore, we must maintain a good relationship with our friend Japan. But what about Europe?

Scott Besant, the Secretary of the Treasury, excluded Europe, a friend, from the U.S.-Japan cooperation aimed at inducing a stronger yen. He employed an unusual tactic of purchasing yen using euros without prior notification to the European Central Bank.

The 'Besant Operation' that struck the global forex market is a form of gambling. If there are fluctuations in the existing positions of the dollar, yen, euro, and yuan, it could be a boon for the digital asset market. In particular, Bitcoin and gold are well-positioned to seize this opportunity as alternative investment assets.

Besant Operation

There was a massive retreat of short-selling speculators betting against the yen due to U.S.-Japan cooperation. The dollar's weakness was further reinforced by last Friday's weak employment data.

Behind these market changes is the Besant Operation. For the first time in decades, U.S. and Japanese authorities conducted a strong intervention in the forex market. Immediately after the joint intervention on August 3, the yen quickly appreciated to 155.23 yen per dollar. Although it later relinquished a significant portion of its gains amid market skepticism, the yen regained strength in conjunction with poor U.S. employment data.

In particular, speculators betting against the yen significantly withdrew their positions. According to data from the Commodity Futures Trading Commission (CFTC), hedge funds and other leveraged funds reduced their net short positions in yen from approximately 138,000 contracts (the highest since 2007) at the end of June to 63,600 contracts by August 4.

The net long positions in dollars by speculators, including asset management firms and non-commercial traders, also plummeted from $49 billion to $37 billion in just one week.

Concerns Over Fed Independence

Besant's strategy, which led this forex market intervention, has faced criticism as a very risky innovation. Instead of selling government bonds, which would cause U.S. Treasury yields to rise, he chose an unusual method of using euros held by the Treasury's Exchange Stabilization Fund (ESF) to purchase yen. This was intended to strike at speculators while avoiding an increase in borrowing costs for Americans (rising Treasury yields).

Before entering the Trump administration, Besant was a hedge fund manager who made large bets on the British pound and Japanese yen. He is someone who understands macroeconomic variables and forex market mechanisms better than anyone else.

With Besant now wielding the powerful sword of the U.S. Treasury, it was only a matter of time before innovative policies emerged. He even utilized the Fed's "Foreign and International Monetary Authorities Reverse Repo (FIMA Repo) program" to lend dollars for yen purchases to Japan.

However, serious side effects have been raised at this point. The method of using FIMA funds could directly impact the portfolio of government bonds held by the Fed. Above all, FIMA is a tool used in crisis situations. The market cannot help but evaluate whether this is indeed a crisis situation.

FIMA increases the Fed's balance sheet. The Fed printed money with its dollar issuance power and lent it to Japan.

Besant's ability to manipulate both the Fed's monetary policy and the Treasury's fiscal policy is also a target of criticism. This could lead to side effects that blur the boundaries between monetary and fiscal policy.

Particularly under the leadership of Fed Chair Kevin Warsh, the market is closely monitoring the Fed's policy independence. In a sensitive situation where there are doubts about whether the Fed will act completely independently of political pressure from the White House, the involvement of the Fed in Treasury-led currency defense measures is seen as a dangerous timing.

Deterioration of Economic Confidence and Potential Undermining of Dollar Value

Bloomberg warned in an editorial, "Currency trading cannot replace a clear and stable economic policy," stating, "If this lesson is ignored for too long, there will be harsh consequences for all involved."

Historically, artificial currency defenses have been merely temporary remedies, and the moment investors doubt the effectiveness of government intervention, the costs of currency defense skyrocket. Besant himself used this logic when attacking the pound and yen: "Authorities' defenses cannot beat the market."

If the controversy over the Fed's independence heats up during the market intervention and the overall trust in U.S. economic policy declines, it could lead to catastrophic results such as rising long-term Treasury yields and skyrocketing borrowing costs for the U.S.

What will happen to Scott Besant's forex market intervention card, which was hastily introduced for short-term yen appreciation? In the long run, it could undermine trust in U.S. economic policy and fundamentally damage the absolute status and trust of the dollar as a safe asset and global reserve currency. This presents a golden opportunity for Bitcoin.