BitMEX founder Arthur Hayes: A Fed rate cut will send Bitcoin to $70,000

Kamal531

Cryptocurrency derivatives exchange BitMEX co-founder Arthur Hayes, who was arrested and has since transitioned into a writer, often discusses market conditions related to cryptocurrencies in his articles. His unique perspectives are well-received by many readers. Recently, he published another lengthy article titled "Are We There Yet?" in which he revisits his views from the Korean Blockchain Week.

Federal Reserve rate cuts will propel Bitcoin to $70,000, and holding long-term U.S. bonds is foolish.

Hayes believes that if the Federal Reserve continues to raise interest rates, real interest rates will become more negative. To protect banks and other financial institutions from bankruptcy, the only choice for the Federal Reserve is to cut interest rates and restore the health of the U.S. banking system. After that, we will witness Bitcoin rapidly move towards $70,000.

Furthermore, Arthur Hayes mentions that when the Fed began raising interest rates in March 2022, the real interest rate on 2-year U.S. bonds was negative. However, the world is currently experiencing the largest interest rate hike cycle in decades, yet the real interest rate on 2-year U.S. bonds remains barely positive.

Traditional economists argue that with Fed rate hikes, growth in credit-sensitive economies will slow down. In this scenario, the nominal GDP growth rate should decrease, and real interest rates on U.S. bonds should rise. However, this hasn't happened. Even if you replace the 2-year bond yield with the 10-year or 30-year bond yield, real interest rates are still negative, making holding long-term U.S. bonds seem foolish.

Arthur Hayes explains that this outcome is due to the quantitative easing bull market caused by the COVID-19 pandemic between 2020 and 2021, which brought in a significant amount of tax revenue for the wealthy. Starting in early 2022, the Federal Reserve began raising interest rates, and U.S. tax revenue from the wealthy decreased rapidly. To fill the deficit, the U.S. government needs to raise more funds.

The typical approach is to issue bonds, borrowing money from investors. However, the government would need to pay more interest to the wealthy holding these bonds. This effectively stimulates spending and nominal GDP growth. Therefore, raising interest rates might unexpectedly promote economic growth, even though the initial intention was to control inflation.

Buying physical Bitcoin ETFs isn't considered escaping the traditional financial system.

It's worth noting that the legal battle between Grayscale and the U.S. Securities and Exchange Commission (SEC) over converting their Bitcoin Trust Fund (GBTC) into a physical Bitcoin ETF briefly saw victory in late August. In his article, Arthur Hayes believes that in the future, buying physical Bitcoin ETFs won't necessarily transfer funds out of the traditional financial system. The only way to bring incremental funds into the cryptocurrency market is by purchasing Bitcoin and withdrawing it to a Web3 wallet.