Arthur Hayes, co-founder of BitMEX and Chief Investment Officer of Maelstrom, stated that a Bitcoin and Ethereum crypto market crash could occur following the Federal Reserve’s anticipated rate cut. Speaking at the Token2049 conference, Hayes explained that risk assets, including cryptocurrencies, may experience significant drops just days after the Fed rate cut. This marks the first cut since 2020 and is expected to begin a liquidity easing cycle, which, historically, has supported Bitcoin (BTC).
However, Hayes warned that the cut would likely fuel inflation and boost the value of the Japanese yen (JPY), causing widespread market instability.
“The rate cut is a bad idea because inflation is still an issue in the U.S.,”
Hayes explained. He added that cheaper borrowing would worsen inflation pressures.
The narrowing interest rate gap between the U.S. and Japan, Hayes noted, could lead to yen appreciation and disrupt yen carry trades. This could trigger a sell-off in Bitcoin and Ethereum.
Yen Strength Could Repeat August’s Market Decline
Hayes referred to the market turbulence caused by the yen’s strength in August, when the Bank of Japan raised interest rates. This caused Bitcoin to fall from $64,000 to $50,000 within a week. Hayes expects similar volatility as the US lowers rates.
Analysts predict further rate hikes in Japan, while the Fed moves in the opposite direction, further strengthening the yen. This could lead to a broader sell-off in risk assets financed by yen-denominated loans, including cryptocurrencies like Bitcoin and Ethereum.
Hayes emphasized that the initial reaction to the Fed’s rate cuts would likely be negative. He anticipates further cuts to manage the fallout, which could push U.S. rates toward zero.
Risk of Bitcoin and Ethereum Market Crash, But Some Areas Could Benefit From Low Rates
Despite the potential for a Bitcoin and Ethereum crypto market crash, Hayes pointed out that some areas of the market could benefit from the expected low-rate environment. Investors might seek yield-bearing opportunities, such as Ethereum (ETH) staking. This offers an annualized yield of 4%.
Hayes also mentioned Ethena’s USDe and Pendle’s BTC staking as products that could gain attention. Ethena’s USDe uses Bitcoin and Ethereum to generate yield, while Pendle’s BTC staking offers a floating yield of 45%. These products might attract more investors looking for higher returns as interest rates fall.
However, Hayes noted that demand for tokenized treasuries, which are sensitive to interest rates, could weaken in a low-rate environment.
Hayes on the Future of Central Banks
During the discussion, Hayes referred to Russel Napier, a market strategist who believes central banks are becoming irrelevant. Napier has suggested that governments are taking control of the money supply to reduce debt-to-GDP ratios.
Hayes agreed with this assessment, stating,
“The era of central banks is over. Politicians will take over and direct liquidity into specific sectors of the economy.”
He also pointed out that capital controls could become more common. This would make crypto a crucial asset due to its global portability.
This shift in control, Hayes noted, could have a lasting impact on the global financial system, with Bitcoin and Ethereum remaining key assets.
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