Former BitMEX CEO Arthur Hayes believes that upcoming interest rate cuts by the US Federal Reserve (Fed) could trigger a short-term crash in the cryptocurrency market.
Fed is making a colossal mistake, says Hayes
In a presentation titled “Reflections on Current Macroeconomic Events” at the Token2049 event in Singapore on September 18, Hayes indicated that he was not too excited on the Fed’s decision to cut interest rates. Hayes said:
I think the Fed is making a colossal mistake in cutting rates at a time when the US government is printing and spending more money than it ever has in peacetime. While I think a lot of people are looking forward to a rate cut, meaning they think the stock market and other factors are going to step up, I think the markets are going to crash a few days after the Fed rates.
During his presentation, the serial digital asset entrepreneur showed a chart showing that nearly 50% of central banks around the world are now in rate-cutting mode. Hayes estimated that the Fed could cut rates by 50 or 75 basis points (bps), which could narrow the interest rate differential between the US dollar (USD) and the Japanese yen (JPY) and lead to a broader market decline. He noted:
“We saw what happened a few weeks ago when the yen went from 162 to about 142, in about 14 trading days, which caused almost a mini financial meltdown,” the former BitMEX executive said, adding: “We’re going to see a recurrence of that financial stress.”
To support his prediction, Hayes compared investing in digital currencies to holding 5%-yielding Treasuries. He said investors would much rather put their money into government-backed Treasuries during times of market turbulence than into riskier decentralized finance (DeFi) applications. Hayes noted that the yields on many crypto assets are “either slightly above or below the Treasury yield.”
However, Hayes did not completely dismiss the idea of holding cryptocurrencies amid falling interest rates. He analyzed the returns generated by four cryptocurrencies, namely Ethereum (ETH), Ethena (ENA), Pendle (PENDLE), and Ondo (ONDO). Hayes noted that he has significant holdings in three cryptocurrencies, with the exception of ONDO.
Hayes confident in Ethereum despite weak performance
Hayes said the current high interest rate environment is having a serious impact on financial markets around the world, including Cryptocurrency markets. Taking Ethereum as an example, Hayes said its staking yields of 3-4% are not attractive enough for investors to ignore Treasuries yielding 5.5% with no risk.
Hayes went so far as to call Ethereum an “internet bond,” which isn’t too surprising since throughout 2024, ETH has consistently underperformed most other major cryptocurrencies like Bitcoin (BTC), Solana (SOL), Binance Coin (BNB), and others.
However, Hayes added that with interest rates dropping rapidly, the prospects for an Ethereum bull market would increase. However, the appeal of the digital asset will depend a lot on Treasury yields falling at an even faster pace. Hayes added that despite the headwinds Ethereum is facing, he continues to invest in it.
Hayes isn’t the only cryptocurrency enthusiast skeptical of interest rate cuts. Another cryptocurrency market expert recently affirmed The Fed’s decision to cut rates could lead to selling and corrections in the market. Bitcoin is trading at $59,746 at press time, up 1.2% in the last 24 hours.
Featured image from Unsplash.com, chart from TradingView.com
