On September 4, Arthur Hayes, co-founder of BitMEX, analyzed in depth the profound impact of the current Fed policy and fiscal environment on the market in his latest blog post. He pointed out that although the Fed has been trying to curb inflation through continuous interest rate hikes since 2022, the government's huge fiscal spending is still the main reason for high inflation. Hayes believes that due to political pressure and election cycles, it is difficult for the government to significantly cut spending or increase taxes, which will cause the US economy to continue to hover under the dual pressures of inflation and growth. Faced with this situation, the Federal Reserve may no longer raise interest rates further, and the market itself may respond to high debt financing costs by adjusting interest rate levels. The 10-year U.S. Treasury yield may climb to 5% again, triggering a new round of fluctuations in the financial market.
Hayes particularly emphasized that the current policy uncertainty of the Federal Reserve has a particularly significant impact on the cryptocurrency market. He pointed out that the price of Bitcoin has become one of the most sensitive indicators of the liquidity status of the US dollar. Between the interest rate policy of the Federal Reserve and the liquidity operations of the Treasury Department, the price fluctuations of crypto assets such as Bitcoin show a deep linkage with traditional financial markets. With the Federal Reserve likely to cut interest rates again in 2024, market concerns about US Treasury yields have increased, which will make investors pay more attention to the impact of US dollar liquidity on the price of crypto assets. Hayes believes that if interest rates rise again and market liquidity tightens, Bitcoin and other cryptocurrencies may face a new round of price corrections.
In addition, Hayes also suggested that U.S. Treasury Secretary Janet Yellen may respond to market instability by issuing more short-term Treasury bonds (T-bills) and adjusting fiscal policies, aiming to increase market liquidity to prevent the financial system from getting into trouble due to rising debt costs. Hayes predicts that these measures will have an important impact on risky assets, including cryptocurrencies. Once the U.S. Treasury Department sends a signal of increasing liquidity, the cryptocurrency market may usher in new opportunities for growth. Especially as global central bank policies continue to swing, crypto assets are expected to become the main choice for investors seeking hedging and risk aversion. Hayes emphasized that although Bitcoin prices may fluctuate in the short term due to liquidity tightening, in the long run, as liquidity is re-injected into the market, the bull market in cryptocurrencies is expected to restart.
“My shift in perspective has kept my hand hovering over the buy button,” Hayes said. “I am not selling crypto because of short-term bearishness. As I explained, my bearishness is only temporary.”
