Arthur Hayes, co-founder of BitMEX and Chief Investment Officer of Maelstrom, stated that a Bitcoin and Ethereum crypto market crash could occur
BitMEX co-founder and Maelstrom Chief Investment Officer Arthur Hayes has warned that a Bitcoin and Ethereum crypto market crash could follow the Federal Reserve’s anticipated rate cut.
Speaking at the Token2049 conference, Hayes explained that risk assets, including cryptocurrencies, may experience sharp 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 a problem in the U.S.,”
Hayes explained, adding 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 pointed to the market turbulence caused by the yen’s strength in August, when the Bank of Japan raised interest rates, causing Bitcoin to fall from $64,000 to $50,000 within a week. Hayes expects similar volatility as the US lowers rates.
With analysts predicting further rate hikes in Japan as the Fed moves in the opposite direction, the yen is set to strengthen further. This could lead to a broader sell-off in risk assets financed by yen-denominated loans, including cryptocurrencies like Bitcoin and Ethereum.
Hayes highlighted 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, Ethereum Market Crash, But Some Areas Could Benefit From Low Rates
Despite the potential for a Bitcoin and Ethereum crypto market crash, Hayes noted that some areas of the market could benefit from the expected low-rate environment. Investors might seek out yield-bearing opportunities, such as Ethereum (ETH) staking, which 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 may attract more investors as interest rates fall.
However, demand for tokenized treasuries, which are sensitive to interest rates, could weaken in a low-rate environment, Hayes added.
Hayes on the Future of Central Banks
During the discussion, Hayes brought up Russel Napier, a market strategist who believes that central banks are becoming largely irrelevant and that governments are instead taking control of the money supply to reduce debt-to-GPD 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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