in his last blog post Posted on Jan. 19, Arthur Hayes, the former CEO of the BitMEX exchange, predicted a “global financial meltdown” thanks to future economic woes in the United States.
Hayes: Crypto Will "Smoke" on Fed Pivot
Bitcoin's current rally should probably 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 this week warned that the Federal Reserve's current behavior would turn from tight to liberal, but would cause crypto assets to "go up in smoke."
With US inflation declining, the Federal Reserve is the focus of virtually all crypto analysts this year as they estimate the likelihood of a policy "pivot" away from quantitative tightening (QT) and price hikes. interest rates at flat and then declining rates, and potentially even quantitative. relaxation (QE).
Essentially, this means moving away from draining liquidity out of the economy 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 half trillion dollar write-off in 2022 created the worst bond and stock performance in a few hundred years, imagine what would happen if twice that amount was written off in 2023,” he 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"The reaction of the markets when money is injected or withdrawn is not symmetrical, and as such, I expect the law of unintended consequences to bite the Fed on the butt as it continues to withdraw liquidity."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 goes up in smoke as the glue that holds the global USD-based financial system together dissolves,” the blog post continues.
Current estimates, as shown by CME Group FedWatch Toolthey are overwhelmingly in favor of the Fed reducing the pace of rate hikes in its next decision on February 1.
Planning a repeat of March 2020
Hayes is not the only one who suspects that Bitcoin is a firm "buy" today after two weeks of near-vertical price growth.
Related: Bitcoin Sees New 4-Month High As US PPI, Retail Data Posts 'Big Mistakes'
Like Cointelegraph reportedSeveral commentators are betting that new macroeconomic lows will continue to appear, with BTC/USD taking out its bottom starting in Q4 2022.
Those who take a leap of faith and hoard now face serious risk before reward.
“This scenario is less than ideal because it would mean that everyone buying risky assets would now be in for massive reductions in yield. 2023 could be just as bad as 2022 until the Fed changes,” Hayes wrote, though he called that scenario his “base case.”
If that means a retest of the 2022 lows, the area between $15,000 and $16,000 will be a key area of interest going forward.
“I will know that the market has probably bottomed out, because the crash that occurs when the system temporarily fails will either hold the previous lows of $15,800 or not,” 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.
BTC/USD consolidated at $20,800 at the Jan. 19 Wall Street open, data from Cointelegraph Pro Markets Y TradingView presented.
The views, thoughts, and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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