Former BitMEX CEO Arthur Hayes believes that upcoming interest rate cuts by the US Federal Reserve (Fed) could trigger a near-term crash in the cryptocurrency market.
The Fed is making a colossal mistake, says Hayes
In a presentation titled 'Reflections on Current Macroeconomic Developments', at the Token2049 event in Singapore on September 18, Hayes indicated He is not too much enthusiastic on the Federal Reserve's decision to cut interest rates. Hayes said:
I think the Federal Reserve is making a colossal mistake by cutting rates at a time when the US government is printing and spending as much money as ever before in peacetime. While I think a lot of people are expecting a rate cut, meaning they think the stock market and other things are going to get tighter, I think the markets are going to crash a few days after the Fed rates.
During the presentation, the digital asset entrepreneur pointed to a chart showing that nearly 50% of the world’s central banks are currently in rate-cutting mode. Hayes opined that the Fed could cut rates by 50 or 75 basis points (bps), which could narrow the interest rate differential between the US dollar (USD) and the Japanese yen (JPY) and culminate in a broader market decline. He noted:
“We saw what happened a few weeks ago when the yen went from 162 to about 142, in about 14 trading days that caused almost a mini financial collapse,” the former BitMEX executive said, adding: “We're going to see a re-examination of that financial stress.
To give further credence to his prediction, Hayes compared investing in digital currencies to holding Treasury bills (T-bills) with a 5% yield. He said investors would rather put their money into government-backed T-bills during market turmoil than riskier decentralized finance (DeFi) applications. Hayes stressed that income yields on many crypto assets are “slightly above or below the Treasury bill rate.”
However, Hayes did not completely rule out the possibility of holding cryptocurrencies in a declining interest rate environment. He analyzed the returns generated by four cryptocurrencies, namely Ethereum (ETH), Ethena (ENA), Pendle (PENDLE), and Ondo (ONDO). Hayes emphasized that he has significant holdings in three cryptocurrencies except ONDO.
Hayes is confident in Ethereum despite its weak performance
Hayes said the current high interest rate environment is having a severe impact on financial markets around the world, including Cryptocurrency markets. Taking Ethereum as an example, Hayes said its 3-4% staking yields are not attractive enough for investors to ignore Treasury bills that yield 5.5% without any risk.
Hayes went so far as to call Ethereum an “Internet bond,” which isn’t too surprising since throughout 2024, ETH has consistently underperformed most other major cryptocurrencies like Bitcoin (BTC), Solana (SOL), Binance Coin (BNB), and others.
However, Hayes added that with interest rates falling rapidly, the prospects for an Ethereum bull market would increase. However, the digital asset’s appeal will largely depend on Treasury yields falling at an even faster pace. Hayes added that despite the headwinds facing Ethereum, he is still invested in it.
Hayes isn't the only crypto enthusiast who is skeptical of interest rate cuts. Another cryptocurrency market expert recently spoke out about the issue. He stated 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 press time, up 1.2% over the past 24 hours.
Featured image from Unsplash.com, chart from TradingView.com
