The U.S. Federal Reserve (Fed) is almost certain to announce an interest rate cut in the early morning of tomorrow (19th). The market generally believes that as monetary policy becomes looser, it will inevitably benefit the financial market. However, BitMEX co-founder and former CEO Arthur Hayes boldly It is predicted that high-risk assets, including cryptocurrencies, may plummet within days after the Fed cuts interest rates.
The U.S. Fed cut interest rates for the first time in more than four years, which will also start the so-called "liquidity easing cycle." Past history shows that in a market environment with loose liquidity, the Bitcoin market is usually greatly boosted.
Arthur Hayes explained in an interview with CoinDesk during the "Singapore Token2049" today (18th) that this interest rate cut may intensify the inflation problem and cause the Japanese yen (JPY) to strengthen, which in turn triggers broader risk aversion in the market. He said:
Cutting interest rates is not a good idea because the inflation problem in the United States has not yet been solved, and the government is one of the main sources of pressure leading to "sticky prices". Even lowering borrowing costs will only exacerbate inflation.
Editor's note: "Sticky Prices" refers to the phenomenon that prices continue to remain high even in the face of weakening demand or economic slowdown.
Is the “yen carry trade” another wave of liquidation?
Arthur Hayes further pointed out that cutting interest rates will also narrow the interest rate gap between the United States and Japan, which may lead to a sharp appreciation of the yen and trigger a wave of unwinding of "yen carry trades."
Markets had already seen the instability caused by a rising yen in early August when the Bank of Japan raised its benchmark interest rate from zero to 0.25%, with Bitcoin falling from about $64,000 to $50,000 in a week.
Arthur Hayes emphasized that the "USD/JPY exchange rate" is the only key indicator for the market in the short term.
Most analysts expect the Bank of Japan to raise interest rates further in the coming months, contrary to the path taken by the Fed, which means that the yen may strengthen further, forcing investors to sell risky assets that they originally borrowed at low interest rates to invest in yen.
Arthur Hayes predicts that U.S. interest rates will fall all the way back to near zero from the current 5.25% to 5.5%.
The initial reaction of the market will be negative, and the central bank's response may be to further cut interest rates to deal with the crisis. So I think cutting interest rates is a bad decision, but they're going to do it anyway and it's going to be down to zero very quickly.
Ethereum bull run is coming
Near-zero interest rates mean investors will once again seek other sources of income, and therefore, yield-generating assets like Ethereum could usher in a bull market. Arthur Hayes notes that Ethereum, with an annualized pledge yield of 4%, will eventually benefit in an ultra-low interest rate environment.
In addition, Ethena’s USDe and DeFi platform Pendle’s Bitcoin pledge may also benefit from this. However, demand for products that are more sensitive to interest rates such as "tokenized government bonds" may weaken.
〈Fed interest rate cuts may not necessarily be good for Bitcoin! Arthur Hayes: May trigger a cryptocurrency crash> This article was first published on "Blocker".
