Arthur Hayes, co-founder of BitMEX and Chief Investment Officer of Maelstrom, has cautioned that a potential crash in the Bitcoin and Ethereum markets could follow the Federal Reserve’s anticipated rate cut. Speaking at the Token2049 conference, Hayes explained that risk assets, including cryptocurrencies, might face significant declines just days after the Fed implements its first rate cut since 2020, marking the beginning of a liquidity easing cycle that has historically supported Bitcoin (BTC).
However, Hayes warned that this rate cut could exacerbate inflation and strengthen the Japanese yen (JPY), leading to broader market instability. “The rate cut is a bad idea because inflation is still an issue in the U.S.,” he stated, emphasizing that cheaper borrowing could intensify inflationary pressures.
Hayes noted the narrowing interest rate gap between the U.S. and Japan could lead to yen appreciation and disrupt yen carry trades, potentially triggering a sell-off in Bitcoin and Ethereum. He referred to August’s market turbulence, when the Bank of Japan raised interest rates, causing Bitcoin to drop from $64,000 to $50,000 within a week. He anticipates a similar volatility following the U.S. rate cuts.
With expectations of further rate hikes in Japan contrasting with the Fed’s impending cuts, Hayes believes this could further strengthen the yen and lead to a broader sell-off in risk assets financed by yen-denominated loans, including cryptocurrencies.
While Hayes foresees initial negative reactions to the Fed’s rate cuts, he also pointed out that some areas of the market could benefit from a low-rate environment. Investors may turn to yield-bearing opportunities such as Ethereum (ETH) staking, which currently offers an annualized yield of 4%. Hayes highlighted products like Ethena’s USDe and Pendle’s BTC staking, which could attract investors seeking higher returns as interest rates decrease.
Despite this, Hayes warned that demand for tokenized treasuries, which are sensitive to interest rates, might weaken in a low-rate environment.
During his discussion, Hayes echoed market strategist Russel Napier’s view that central banks are losing influence, suggesting that governments might increasingly control the money supply to reduce debt-to-GDP ratios. He stated, “The era of central banks is over. Politicians will take over and direct liquidity into specific sectors of the economy,” and noted that capital controls could become more prevalent. This shift could enhance the importance of cryptocurrencies like Bitcoin and Ethereum due to their global portability.
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