In his latest blog, posted on Jan. 19, Arthur Hayes, ex-CEO of BitMEX, predicted a “global financial meltdown” due to future economic problems in the United States.
Hayes: Cryptocurrencies “will go up in smoke” on Fed turnaround
Bitcoin’s current rally should not be taken as the start of a new bull run.
That’s the view of Arthur Hayes, who in a new treatise on US macroeconomic policy warned this week that the Federal Reserve’s current behavior would shift from tight to liberal, but would cause crypto assets to “fizzle out.”
With US inflation easing, the Federal Reserve is the focus of virtually all crypto analysts this year as they estimate the likelihood of a political “pivot” away from quantitative tightening (QT) and price hikes. interest rates to flatten and then decline, and potentially even quantitative easing (QE).
This essentially involves moving from draining the economy of liquidity to injecting it back, and while that practice led to new all-time highs for Bitcoin starting in 2020, the same phenomenon wouldn’t be straightforward next time, Hayes believes.
“If a withdrawal of half a trillion dollars in 2022 created the worst returns on bonds and stocks in a few hundred years, imagine what would happen if twice that amount was withdrawn in 2023.” wrote.
“The reaction of the markets when money is injected or withdrawn is not symmetrical, and as such, I expect the law of unintended consequences to bite the Fed on the butt as it continues to withdraw liquidity.”
As such, rather than a smooth transition away from QT, Hayes is betting that dire circumstances will force the Fed to act.
“Some part of the US credit market breaks down, leading to a financial collapse across a wide swath of financial assets,” he explained.
“In a similar response to the action it took in March 2020, the Fed calls an emergency press conference and halts QT, cuts rates significantly, and restarts quantitative easing (QE) by buying bonds once again.” .
This in turn stands for “risk asset price crater.”
“Bonds, stocks and every cryptocurrency under the sun is fading away as the glue that holds the global USD-based financial system together dissolves”continues the blog post.
Current estimates, as shown by the CME Group’s FedWatch Tool, overwhelmingly favor the Fed reducing the pace of rate hikes in its next decision on February 1.
Planning a March 2020 reupload
Hayes is far from the only one wary of Bitcoin being a firm “buy” today after two weeks of near-vertical price growth.
As Cointelegraph reported, several commentators are betting that new macro lows will yet appear, with BTC/USD pulling out its Q4 2022 bottom.
Those who take a leap of faith and stack now therefore face serious risk rather than reward.
“This scenario is less than ideal because it would mean that everyone buying risk assets now would be waiting for massive declines in yield. 2023 could be just as bad as 2022 until the Fed changes course.”Hayes wrote, nonetheless calling that scenario his “base case.”
If that means a retest of the 2022 lows, the $15,000-$16,000 area will be a key zone of interest going forward.
“I will know that the market has probably bottomed out, because the crash that occurs when the system temporarily breaks will or will not hold the previous lows of $15,800,” the blog post concludes.
“It doesn’t really matter what level is ultimately reached on the downside because I know the Fed will move later to print money to prevent another financial collapse, which in turn will mark the local bottom of all risky assets. And then I get another setup similar to March 2020, which requires me to back up the truck and buy crypto with two hands and a shovel.”
Bitcoin (BTC) faces a drop to $15,000 “or below” as part of a massive risk-asset capitulation, says Arthur Hayes.
The BTC/USD pair consolidated at $20,800 at the Wall Street open on Jan. 19, data from Cointelegraph Markets Pro and TradingView showed.
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