Former BitMEX CEO Arthur Hayes believes that the forthcoming interest rate cuts by the US Federal Reserve (Fed) could trigger a temporary crash in the crypto market.
Hayes Describes Fed’s Move as a Major Error
During a presentation titled ‘Thoughts on Macroeconomic Current Events’ at the Token2049 event in Singapore on September 18, Hayes suggested that he is not particularly enthusiastic about the Fed’s plan to lower interest rates. Hayes remarked:
I believe the Fed is making a major mistake by cutting rates while the US government is printing and spending an unprecedented amount of money during peacetime. Although many anticipate a rate cut will boost the stock market and other assets, I foresee the markets collapsing shortly after the Fed’s decisions.
While making his presentation, the seasoned digital asset entrepreneur referenced a chart indicating that nearly 50% of the world’s central banks are currently in rate-cutting mode. Hayes speculated that the Fed could reduce rates by 50 or 75 basis points (bps), which might compress the interest rate gap between the US dollar (USD) and the Japanese yen (JPY), ultimately leading to a broader market decline. He commented:
We observed the outcomes a few weeks ago when the yen depreciated from 162 to around 142 in just about 14 trading days, causing what could be termed a mini financial crisis,” the former BitMEX executive noted, adding: “We can expect a recurrence of that financial strain.
To substantiate his prediction, Hayes compared investing in digital currencies with holding Treasury Bills (T-bills) yielding 5%. He stated that investors would prefer to invest in government-backed T-bills during turbulent market conditions rather than riskier decentralized finance (DeFi) ventures. Hayes emphasized that the income yields from numerous crypto assets are ‘slightly above or below the T-bills rate.’
Nevertheless, Hayes did not completely rule out holding cryptocurrencies in a declining interest rate scenario. He evaluated the returns of four cryptocurrencies: Ethereum (ETH), Ethena (ENA), Pendle (PENDLE), and Ondo (ONDO). Hayes highlighted that he holds considerable amounts in three of these cryptocurrencies, aside from ONDO.
Hayes Remains Optimistic About Ethereum Despite Underperformance
Hayes indicated that the prevailing high interest rate environment is exerting significant pressure on financial markets globally, including the crypto markets. Using Ethereum as an example, he noted that its staking yields of 3-4% are not appealing enough for investors to overlook T-bills yielding 5.5% with no risk at all.
Hayes even referred to Ethereum as an ‘internet bond’, which isn’t too surprising as throughout 2024, ETH has consistently lagged behind most other significant cryptocurrencies like Bitcoin (BTC), Solana (SOL), Binance Coin (BNB), and others.
However, Hayes remarked that if interest rates fall rapidly, the chances of an Ethereum bull market would increase. Yet, the appeal of digital assets will largely depend on T-bill yields decreasing at an even faster rate. Despite the challenges confronting Ethereum, Hayes reaffirmed his commitment to investing in it.
Hayes is not the only crypto advocate expressing doubts regarding interest rate cuts. Another expert in the crypto market recently stated that the Fed’s decision to lower rates could trigger market sell-offs and corrections. Bitcoin is currently trading at $59,746, reflecting a 1.2% increase in the last 24 hours.
Featured Image from Unsplash.com, Chart from TradingView.com
