Source: CoinDesk
By CoinDesk Staff
Original title: Arthur Hayes : 'If They Go 50, That Will Be a Nuclear Catastrophe for Financial Markets'
Compiled by: BitpushNews Shawn
Speaking on CoinDesk’s Markets Daily, BitMEX co-founder and Maelstrom CIO Arthur Hayes discussed the impact of the Federal Reserve’s rate cuts, crypto market trends this year and why he’s investing in Bitcoin Ordinals and Inscriptions .
Arthur Hayes, co-founder of BitMEX and CIO of Maelstrom, spoke with Jennifer Sanasie, host of Markets Daily, and Bradley Keoun, editor-in-chief of CoinDesk Technology and Protocols, to discuss whether a 25 or 50 basis point rate cut by the Federal Reserve would trigger financial turmoil or a short-term market rebound. He also explored the potential impact of government spending, inflation, and the reliance of major economies on the fiat currency system, and analyzed the interaction between Bitcoin and traditional markets. The following is a simplified and edited interview.
Jenn Sanasie: Today the Federal Reserve meeting is taking place in the US. What do you think will happen and how will it affect the markets?
Arthur Hayes: The question is whether they will cut rates by 25 basis points or 50 basis points. Overall, I think they should not raise rates. The U.S. economy is very strong right now, and if you look at the GDP data for the past eight or nine quarters, economic growth has been stable. The U.S. government is also continuing to spend huge amounts of money, which has kept economic growth at a fairly fast pace. This obviously helps the re-election or campaign of the current Democratic government, including Kamala Harris and her running mate. So, with such massive government spending, if the Fed cuts rates and inflation is above target, I think it would be a mistake. If they continue to cut rates, inflation will accelerate in the fourth quarter. I think once the market starts to weaken, they will only accelerate the rate cuts, which will further aggravate the problem. Whether it is a 25 basis point cut or a 50 basis point cut, the market may react in the opposite way to what is expected. Most people think that the more interest rate cuts, the market will rise, whether it is stocks, bonds or assets such as cryptocurrencies. But I hold the opposite view. I think the more interest rate cuts, the more the market will dislike this policy. Maybe the market will rebound a little in a day or two after the fact, but in the end they will not learn from it and will continue to cut interest rates. So I think we're going to see a very rapid rate cutting cycle, is my view.
Sanasie: Let's dig deeper into this question. Suppose they cut interest rates, how will the market react? How will the cryptocurrency market react in particular?
Hayes: I believe and have written many times that the most important macroeconomic variable is the exchange rate of the dollar against the yen. The dollar has depreciated significantly against the yen because the Bank of Japan has cut interest rates to zero or negative, while the Federal Reserve and other major central banks have started raising interest rates since March 2022, causing the interest rate differential to widen significantly. The dollar-yen exchange rate was around 162. Then the Fed said it was ready to start cutting interest rates this summer, and the Bank of Japan indicated that it would raise interest rates and raised interest rates by 15 basis points on July 31. The week after that, global markets fell 10%. If the Fed cuts interest rates by 25 or 50 basis points, the market will fall. In future meetings, the interest rate differential will continue to narrow, the dollar will continue to strengthen against the yen, the yen will strengthen, the nominal value will fall, people will continue to unwind positions, leverage will be removed from the market, stocks will fall, and I think yields will rise. As for the crypto market, it is difficult to judge for the time being.
Keoun: What about Bitcoin? Will it decouple from traditional markets right away, or will it take some time?
Hayes: I don't think there will be an immediate decoupling. If we see a massive sell-off, people will sell what they can, not what they want to sell. Bitcoin is a very liquid asset. A lot of investment managers have a lot of less liquid assets on their books. If they have Bitcoin, they will sell it first. If the basis between Bitcoin spot and futures narrows further, especially after the launch of the ETF this year, some large hedge funds such as Millennium will unwind these basis trades and sell Bitcoin spot in the illiquid market. Therefore, I think Bitcoin will fall with the rest of the market. But soon, as we enter the early stages of a financial crisis, Bitcoin will begin to rebound because I believe the market will respond positively to more money printing. Treasury Secretary Janet Yellen and Federal Reserve Chairman Jay Powell cannot afford a financial collapse weeks before the election, especially when they hope Harris can defeat Trump.
Keoun: To be more specific, the current price of Bitcoin is about $60,000. If the Fed cuts interest rates by 50 basis points, where will the price of Bitcoin go? What if it cuts by 25 basis points? Do you have a specific prediction?
Hayes: I think if it's a 25 basis point cut, the market won't react much because most people are expecting it to be 25 basis points. If it's a 50 basis point cut, it's going to be a nuclear disaster in the financial markets. You might see a massive market rally in the first few days after a rate cut because a lot of people believe the more rate cuts, the better off the market will be. But I actually think it points to deeper problems in the global financial system, which will show up in lower prices after a rate cut.
Sanasie: Samson Mow recently predicted in Markets Daily that Bitcoin could reach $1 million by 2025. This video has caused a lot of discussion among CoinDesk viewers. What do you think of this prediction? Will Bitcoin rise to $1 million next year?
Hayes: It's possible, but I don't think it will happen that quickly. I still hold on to my $1 million target for Bitcoin, but I think it's more likely to be in 2026 or 2027. Whoever wins the U.S. election next year will see a big increase in fiscal spending. If the dollar falls sharply, China has room to launch stimulus and keep the yuan stable. Then, other major central banks will follow the Fed's lead, and if the Fed eases monetary policy, they will also ease monetary policy to ensure that the exchange rate doesn't get hit hard. This is what I think will happen after the new U.S. president takes office, because both Harris and Trump are promising massive spending. Trump promised tax cuts, and Harris promised to increase welfare spending.
Keoun: Arthur, I recently heard you mention on a podcast that you think of this cycle as the sovereign debt crisis. What cycle are you talking about? What cycle are we in now? How long will this cycle last?
Hayes: I'm not sure how long this cycle will last, it depends. But I think if you look at the global reserve currency, the dollar, and the massive spending behind it to keep the system going, we're at a critical juncture. There could be massive tightening and deleveraging, and maybe even revolution, or the authorities will try to maintain stability by controlling the price of government bonds and printing more money to appease voters. Every major economy, whether it's the United States, the European Union, China, or Japan, operates a similar fiat currency fractional reserve system. Whether it's democratic, authoritarian, communist, or capitalist, these are all facades. At the end of the day, all countries print money. Every country has a fractional reserve banking system, and every country needs inflation. They need to pay for government spending by taking wealth from savers, whether that spending is for war, the Green New Deal, reshoring, climate policy, or subsidies for people who have been hurt by the economic transition. There are too many reasons for governments to spend money other than to restore confidence in fiat currencies through austerity.
Keoun: So the question is, can they continue to maintain this?
Hayes: Absolutely, and Bitcoin could even go to $1 million, or even $10 million. Bitcoin is now worth $1.7 trillion, and it's the "magic internet money" that was created out of thin air in 2009. Bitcoin is the antidote to this situation. Yes, a lot of money was printed around the world, especially in the United States, and as a result, Bitcoin was created. We have this cryptocurrency ecosystem based on printing money, and many assets have value because of it. So, I say they are "evading responsibility," and Bitcoin is the "smoke alarm" that tells us that something is wrong with the system.
Sanasie: When you look at the crypto market and the discussion around it, I know you create a lot of content and participate in a lot of discussions. What do you feel like people overlook?
Hayes: Patience. I think a lot of people right now think that Bitcoin needs to go to $1 million right now or it needs to go to $1 million next year because they're heavily leveraged or they've got their entire net worth tied up in some cryptocurrency. They hear about the debt crisis and the economic collapse and they ask: Why hasn't it happened yet? Why not now? I see all of these issues, and I believe what you're saying, the politics are messed up, the financial system is messed up, why hasn't Bitcoin responded yet? Why hasn't my cryptocurrency responded yet? I think there's one thing people need to understand, and that's patience. So far, in just a decade or so, we've created a whole new financial ecosystem. Millions of people around the world have wallets for Bitcoin, Ethereum, Solana, etc. It's been a very successful financial experiment, but it's not going to make Bitcoin suddenly go to an extremely high price just because you bought a lot of it yesterday. So I think people need to understand the power of patience. If you believe in math and the law of compound interest, this is inevitable. The system has to print money and it has to devalue its currency to survive, and every major civilization in history has gone through the same process. Eventually, inflation becomes a burden on the people, and some form of revolution will happen. So history is 100% correct, you just have to wait.
Keoun: Arthur, one of the big things that has happened in the market this year is ETFs. You used to trade ETFs at Citigroup. Can you share your thoughts on the impact of ETFs in the current market?
Hayes: Ultimately, ETFs are designed for people who want the performance of Bitcoin but don't want to own it. They don't want to be their own bank, and they're willing to hand that off to Larry Fink, BlackRock, or other big institutions, and that's fine. You can use Bitcoin as much as you want. But that means you're a passive investor and not really using the protocol. If we take it to the extreme and all Bitcoins are held by BlackRock or similar, then the value of the network goes to zero because no one is actually using it. Bitcoin's value comes from us using it. It's not like gold, which retains its chemical properties even when it's locked up in a vault. If I don't use Bitcoin, the miners can't get paid and the network collapses. This is a fundamental and very subtle difference between Bitcoin and gold that I don't think is a problem today, but it may be in the future. Why was BlackRock able to get an ETF approved in 6 months, while it took the Winklevoss brothers 10 years to succeed? They're also billionaires and well-funded. Why was BlackRock able to get approval so quickly? The bottom line is that the government wants wealth to be controlled by financial institutions that can be easily controlled by the government. BlackRock is just another arm of the US government, just as China's big asset managers are an arm of the Chinese government.
Sanasie: If people don't use Bitcoin, its value will go to zero. Bitcoin will not work the way we expect it to. What will the future look like if this happens?
Hayes: Miners will have less revenue, how will they pay for capital expenditures? The difficulty adjustment of the network will also change. This is a fairly long-term scenario, assuming that Bitcoin does not have any use cases. Of course, this is also why I like Ordinals and Bitcoin's second layer network. We can pay miners to do something with Bitcoin and create use cases for users. In this way, people will continue to use Bitcoin and spend funds, so this problem will be solved in the future.
Keoun: You did some interesting things this year at Maelstrom (your family office investment fund). You launched this Ordinals Inscription series, Airheads , which was really interesting.
Hayes: Thank you. I'm a flexi-coiner, an avid shit-coiner. If you look at it in terms of classification, I think Bitcoin is money and other cryptocurrencies are not. Bitcoin is the hardest money we have ever created in human history. Bitcoin focuses on the security of the network and the immutable blockchain. Ethereum is not money, no matter what people say. The moment the Ethereum community allowed the hard fork to happen in 2016 to repay the victims of the DAO hack, it decided not to be a currency anymore. Ethereum wants to be the best decentralized computer in the world, and it's doing a good job so far. I also put Solana in this category. Obviously, I'm a big fan of Aptos right now, and they're also trying to get into this space. There are a lot of other applications. These projects all want to achieve some functions on certain networks. Decentralized finance is an area that I'm very focused on because I believe that people around the world should be able to access financial products as easily as they can access the Internet, and this is not possible in most countries outside of the United States and Western Europe. Their financial system is very bad, and that's why DeFi makes sense for them. I like this stuff, it's all experimentation. Some projects have been around for 10-15 years, like Bitcoin, while others have been around for less than a year. We are working to create an entirely new system that will allow anyone with an internet connection to choose how to save, how to invest, and how to express themselves on the internet.
Keoun: Speaking of your NFT collection, why did you choose to start investing in the Bitcoin Ordinals Inscriptions project now? What are your thoughts? What is the goal of this project?
Hayes: We are investors inOyl Wallet…
Keoun: Yeah, I met one of their guys at the Bitcoin party in Nashville and talked for a long time at the Parthenon party.
Hayes: We were investors in this wallet and wanted to create some buzz with Ordinals. So we did an Ordinals airdrop, but I didn't want to do another PFP-type AI-generated collection of 10,000 avatars, which was already too much. We wanted to do something unique to Ordinals that couldn't be done on other protocols. So we did Recursive Inscriptions. Our goal is to show artists and creative people what we're doing here. I don't really care where the price of these works goes, I care more about whether people can get inspired to do more things, show the capabilities of Oyl Wallet, and show the potential of Ordinals. See what kind of creativity can produce unique works that can only exist on Ordinals and drive it further.
Keoun: Got it, that’s interesting.
Hayes: That's the goal. Of course, I hope these Airheads are very valuable in the future, but the real goal is to inspire others to create more derivative works using Ordinals and Inscriptions.
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