Cryptocurrency Analyst: Interest Rate Cuts Could Destroy Bitcoin

$BTC

The crypto community is in a tizzy: The prospect of lower interest rates is fueling fantasies about rapid price increases for Bitcoin and Co. But is this euphoria really justified, or are we in for a nasty surprise?

Arthur Hayes, co-founder of cryptocurrency exchange BitMEX and one of the founders of Bitcoin, warns against celebrating too early.

In a recent article, Hayes said the market was experiencing a “sugar rush” of sorts, fueled by Federal Reserve Chairman Jerome Powell’s announcement of interest rate cuts.

Expectations are rising sharply after Powell confirmed that the Fed’s long-awaited shift is imminent, but Hayes urges caution: The long-term implications could be more complex than many currently believe.

Hayes said the market reaction to Powell’s statement was euphoric, although narrowing the interest rate differential between the dollar and the pound, the euro and the yen carries significant risks. These different interest rates are crucial not only for the US market but also for the global market.

A weaker dollar, coupled with a stronger yen, could lead to the so-called “unwinding” of the yen carry trade, which would likely have disastrous effects on global financial markets.

On the one hand, cheap money makes it easier for investors to borrow and thus speculate on riskier forms of investment such as stocks and cryptocurrencies. But on the other hand, a rising yen could unwind global investments, which would have dire consequences for all risky assets.

Hayes points to the example of early August, when the Bank of Japan raised interest rates to 0.25% for the first time in 17 years. The market reacted nervously at the time, and Bitcoin briefly fell below $50,000. Hayes is convinced a similar scenario is possible with the next “yen earthquake.”

In such a crisis, he predicts, the Fed would likely expand its balance sheet and dramatically increase the money supply—a short-term solution with long-term consequences that he calls “real food” for markets.

In conclusion, Hayes believes that despite the potential short-term recession, the prospects for cryptocurrencies are very positive. “They will turn on the money printer and dramatically increase the money supply,” he speculates. “For a finite supply asset like Bitcoin, that means a light-speed trip to the moon!”

Time will tell whether this prediction will eventually come true. But one thing is certain: the announced interest rate cuts will leave no one unaffected, and could either plunge the financial world into chaos or help Bitcoin and other cryptocurrencies reach new heights.