Arthur Hayes, the former CEO of BitMEX, has issued a stark warning regarding the US Federal Reserve’s upcoming interest rate cuts. He believes that these cuts could trigger a short-term crash in the cryptocurrency market. Hayes shared his insights during the Token2049 event in Singapore on September 18, where he presented his views on current macroeconomic trends.
Fed’s Rate Cuts: A Colossal Mistake, According to Hayes
In his presentation titled ‘Thoughts on Macroeconomic Current Events,’ Hayes expressed his concern over the Fed’s decision to reduce interest rates. He argued that:
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“The Fed is making a colossal mistake cutting rates at a time when the US government is printing and spending as much money as they ever have during peacetime. While many anticipate that rate cuts will boost the stock market and other assets, I believe the markets will collapse a few days after the Fed’s rate cuts.”
Hayes highlighted a chart indicating that nearly 50% of central banks globally are currently in rate-cutting mode. He forecasted that the Fed might reduce rates by 50 to 75 basis points (bps), potentially narrowing the interest rate gap between the US dollar (USD) and the Japanese yen (JPY). This, he suggested, could lead to a broader market downturn.
Hayes recalled a recent incident where the yen dropped from 162 to about 142 over approximately 14 days of trading, causing a near financial collapse. He warned that similar financial stress could reoccur.
Investors Prefer T-Bills Over Crypto During Market Turmoil
To support his prediction, Hayes compared investing in digital currencies with holding 5%-yielding Treasury Bills (T-bills). He noted that during market turmoil, investors are more likely to opt for government-backed T-bills rather than riskier decentralized finance (DeFi) applications. He emphasized that the yields from many crypto assets are either slightly above or below the rate of T-bills.
However, Hayes did not completely dismiss the idea of holding cryptocurrencies in a declining interest rate environment. He analyzed the returns of four cryptocurrencies: Ethereum (ETH), Ethena (ENA), Pendle (PENDLE), and Ondo (ONDO). Hayes revealed that he holds significant investments in three of these cryptocurrencies, excluding ONDO.
Confidence in Ethereum Despite Challenges
Hayes acknowledged that the current high interest rate environment is severely impacting financial markets globally, including the crypto markets. Using Ethereum as an example, he pointed out that its staking yields of 3-4% are not enticing enough for investors to overlook T-bills yielding 5.5%, which come with no risk. Hayes described Ethereum as an ‘internet bond,’ noting its underperformance compared to other major cryptocurrencies like Bitcoin (BTC), Solana (SOL), and Binance Coin (BNB).
Despite these challenges, Hayes remains optimistic about Ethereum’s future. He believes that a rapid decrease in interest rates could spark an Ethereum bull market. However, this optimism hinges on T-bill yields falling at an even faster rate. Hayes reiterated his continued investment in Ethereum, despite the headwinds it faces.
Broader Skepticism Towards Rate Cuts
Hayes is not alone in his skepticism towards the Fed’s interest rate cuts. Another crypto market expert recently suggested that the Fed’s decision could lead to market sell-offs and corrections. Currently, Bitcoin is trading at $59,746, marking a 1.2% increase in the last 24 hours.
