Fed Rate Cut May Wreck Crypto Markets, but Central Banks’ Importance is Fading: Arthur Hayes
Arthur Hayes, the co-founder of BitMEX and chief investment officer of Maelstrom, has raised concerns about the impact of a Fed rate cut on risk assets, including cryptocurrencies. He predicts that a few days after the expected rate cut announcement on Wednesday, risk assets may crash. However, Hayes believes that the era of central banks is coming to an end and that cryptocurrencies will become increasingly important in a changing financial landscape.
According to Hayes, the rate cut is a misguided move, as it exacerbates inflation issues in the US. He argues that if borrowing becomes cheaper, it will contribute to inflation rather than alleviating it. He also points out that the interest rate differential between the US and Japan would narrow with rate cuts, leading to Yen appreciation and unwinding of the Yen carry trades. This could have a detrimental effect on risk assets, as seen in August when Bitcoin fell from $64,000 to $50,000 after the Bank of Japan raised its benchmark borrowing cost.
Hayes predicts that the Fed will continue to lower interest rates, potentially reaching near-zero levels. This could lead investors to seek yield elsewhere, triggering a bull run in yield-bearing sectors of the crypto market such as Ether, Ethena’s USDe, and Pendle’s BTC staking. These assets could provide attractive yields in an environment of ultra-low rates. Conversely, demand for tokenized Treasuries, which are sensitive to interest rates, may weaken.
Hayes goes further to claim that the era of central banks is coming to an end. He believes that governments will take control of the money supply and direct banks to create liquidity in specific sectors of the economy. This shifting dynamic, with governments leading the way, could lead to the implementation of soft and hard capital controls in different regions. As a result, Hayes sees cryptocurrencies as the only globally portable assets that can offer an exit from this system.
In summary, while Hayes warns of potential negative consequences for cryptocurrencies following a Fed rate cut, he also sees it as a sign of an evolving financial landscape where the influence of central banks is diminishing.