Arthur Hayes, former CEO of BitMEX, believes that the upcoming rate cuts by the US Federal Reserve (Fed) could trigger a short-term crash in the crypto market.
Fed makes colossal mistake, says Hayes
Hayes gave a presentation titled “Thoughts on Macroeconomic Current Events” at the Token2049 event in Singapore on September 18. indicated he is not to excited on the Fed’s decision to cut rates. Hayes said:
I think the Fed is making a colossal mistake by lowering rates while the US government is printing and spending as much money as it has ever done in peacetime. While I think a lot of people are looking for a rate cut, which means they think the stock market and other things are going to rally, I think the markets are going to crash a few days after the Fed cuts.
During the presentation, the serial digital asset entrepreneur pointed to a chart showing that nearly 50% of the world’s central banks are currently cutting interest rates. Hayes believed that the Fed could cut rates by 50 or 75 basis points (bps), which could narrow the interest rate differential between the U.S. dollar (USD) and the Japanese yen (JPY) and result in a broader market decline. He noted:
“We saw what happened a few weeks ago where the yen went from 162 to about 142, in about 14 days of trading, which almost caused a small financial collapse,” the former BitMEX executive said, adding: “We’re going to see a reevaluation of that financial stress.
To bolster his prediction, Hayes contrasted investing in digital currencies with holding 5% yielding Treasury Bills (T-bills). He said investors would much rather put their money into government-backed T-bills during market turmoil than riskier decentralized finance (DeFi) applications. Hayes stressed that many cryptocurrencies’ earnings are “slightly above or below the price of T-bills.”
However, Hayes wasn’t entirely dismissive of holding cryptocurrencies in a falling interest rate environment. He analyzed returns generated by four cryptocurrencies, namely Ethereum (ETH), Ethena (ENA), Pendle (PENDLE), and Ondo (ONDO). Hayes highlighted that he has significant holdings in three cryptocurrencies, except for ONDO.
Hayes Confident in Ethereum Despite Weak Performance
Hayes said the current high interest rates are having a serious impact on financial markets around the world, included crypto markets. Hayes took the example of Ethereum, saying that the 3-4% staking yields are not attractive enough for investors to ignore T-bills with a yield of 5.5% without any risk.
Hayes even went so far as to call Ethereum an “internet bond,” which isn’t all that surprising considering ETH has consistently underperformed most other major cryptocurrencies like Bitcoin (BTC), Solana (SOL), Binance Coin (BNB), and others throughout 2024.
However, Hayes added that with a rapid decline in interest rates, the prospects of an Ethereum bull market would increase. However, the attractiveness of the digital asset will depend heavily on T-bill yields falling even faster. Hayes added that despite the headwinds facing Ethereum, he is still invested in it.
Hayes isn’t the only crypto enthusiast skeptical of rate cuts. Another crypto market expert recently said claimed that the Fed’s decision to cut rates could lead to sell-offs and corrections in the market. Bitcoin is trading at $59,746 at the time of writing, up 1.2% in the past 24 hours.
Main image from Unsplash.com, chart from TradingView.com