Bitrabo Editorial
Arthur Hayes, the former CEO of BitMEX, believes that the anticipated interest rate cuts by the US Federal Reserve could trigger a temporary crash in the cryptocurrency market.
Hayes Critiques Fed’s Rate Cuts
During a talk titled ‘Thoughts on Macroeconomic Current Events’ at the Token2049 conference in Singapore on September 18, Hayes expressed his concerns about the Fed’s decision to lower interest rates. He stated:
The Federal Reserve is making a major error by cutting rates while the US government is engaging in extensive money printing and spending during peacetime. Although many expect rate cuts to boost the stock market and other sectors, I believe that markets could experience a downturn soon after the Fed’s announcement.
In his presentation, Hayes presented a chart revealing that nearly half of the world’s central banks are currently reducing rates. He suggested that the Fed might lower rates by 50 to 75 basis points (bps), which could decrease the interest rate gap between the US dollar and the Japanese yen, potentially leading to significant market declines. He remarked:
Recent events demonstrated the risk when the yen rapidly shifted from 162 to around 142 over two weeks, leading to a mini financial crisis. We might see similar financial pressures again.
To support his viewpoint, Hayes compared investing in cryptocurrencies to holding US Treasury Bills (T-bills) that yield 5%. He argued that amidst market instability, investors are likely to prefer the stability of government-backed T-bills over the riskier decentralized finance (DeFi) options, given that many crypto assets provide returns that are similar to or lower than T-bill yields.
Nevertheless, Hayes remained somewhat optimistic about holding cryptocurrencies even amid declining interest rates. He analyzed the performance of four cryptocurrencies: Ethereum (ETH), Ethena (ENA), Pendle (PENDLE), and Ondo (ONDO), highlighting that he has considerable investments in three of them, excluding ONDO.
Hayes Maintains Faith in Ethereum Despite Struggles
Hayes pointed out that the current high interest rate environment is adversely affecting financial markets globally, including those for cryptocurrencies. He specifically mentioned Ethereum, noting that its staking yields of 3-4% aren’t compelling enough for investors to overlook T-bills, which provide risk-free returns of 5.5%.
Describing Ethereum as an ‘internet bond’, Hayes noted that throughout 2024, ETH has struggled against other key cryptocurrencies like Bitcoin (BTC), Solana (SOL), and Binance Coin (BNB). He argued that if interest rates were to decrease rapidly, it could improve the outlook for an Ethereum bull market. Ultimately, the appeal of digital assets will largely hinge on T-bill yields dropping even faster. Despite Ethereum’s challenges, Hayes confirmed that he continues to invest in it.
Hayes isn’t alone in his skepticism regarding interest rate cuts—a fellow crypto market analyst recently argued that the Fed’s decision might result in market sell-offs and corrections. At the time of this report, Bitcoin was trading at $59,746, marking a 1.2% increase within the last 24 hours.