Arthur Hayes, co-founder of BitMEX, has compared the recent actions of the United States Federal Reserve to a temporary “sugar high” for the economy, predicting potential rally effects for cryptocurrencies.
In his latest Medium article, Hayes connects recent central bank decisions to a possible shift in investor sentiment towards Bitcoin and other digital assets. He points out that the U.S. Federal Reserve's rate cuts could trigger an unwinding of the Japanese yen carry trade, which might “derail the party” unless the Federal Reserve “raises the quantity of money.”
Japanese Yen Carry Trade and Its Implications
Hayes argues that while lower interest rates might temporarily support traditional markets, they carry significant consequences for fiat currencies and crypto assets. He suggests that as the interest rate differential narrows, the yen could strengthen, potentially causing global market turbulence and prompting central banks to further expand their balance sheets.
He describes this balance sheet expansion as “real food,” which would inject liquidity into the markets and potentially increase the value of finite-supply assets like Bitcoin.
Easing Money Supply as a Crypto Catalyst
In his discussion of the yen carry trade strategy, Hayes elaborates that investors typically borrow in yen at low interest rates to invest in higher-yielding assets in other currencies. As central banks reduce interest rates, the diminishing rate differential makes this strategy less attractive, potentially strengthening the yen and prompting the unwinding of these trades.
“The fiat liquidity conditions could not be more favourable going into the final stretches of the third quarter. We have the following tailwinds at our backs as crypto hodlers,”
Hayes notes.
Aurelie Barthere, an analyst at Nansen, told that the Federal Reserve's rate cuts were “one bullish driver for BTC.” She added,
“[.…] the largest risk is equities and their expensive valuations (22.5x forward PE for the S&P 500). If we get a significant correction, this would tighten financial conditions for the economy and for risk assets like BTC, even with the Fed cutting rates.”
BTC Needs to Break $70,000
On August 12, Hayes wrote on Substack that Bitcoin (BTC) and Ether (ETH) must surpass $70,000 and $4,000, respectively, before the altcoin season can begin. He stated,
“The combination of a dollar liquidity-inspired Bitcoin and Ether rally into year-end will create a strong foundation for the return of a sexy shitcoin soiree.”
Hayes also predicted that if $301 billion in Treasury bills are “net issued” by the end of the year, Bitcoin would “quickly retrace the dump” caused by the yen's strengthening, with the next target being $100,000.
