Arthur Hayes, the founder of BitMEX, says he’s bearish on crypto for now, blaming economic factors and policy decisions. “The Fed’s got everyone trained like Pavlov’s dogs,” Arthur told us. “Rate cuts come, and everyone buys the dip. But this time, things are different.”
The early Bitcoin believer points out that the world’s been living in a bubble of low inflation for years. The Fed would just print money whenever deflation loomed, keeping asset prices high. This easy money policy worked because the dollar is the world’s reserve currency, making things easy for everyone globally.
But the COVID pandemic changed all that. Governments around the world, especially in America, went on a spending spree. “Inflation shot up, and central banks had to admit it wasn’t going away,” Arthur says.
To fix this, the Fed started raising rates aggressively from March 2022 to July 2023. The 10-year Treasury yield didn’t go over 4% even when inflation was at its worst. The markets believed the Fed would keep raising rates to crush inflation, but then came August 2023.
“Rising deficits undermine efforts to control inflation”
At the Jackson Hole conference, Fed Chair Jerome Powell hinted at a rate cut for September. Immediately after, as expected, yields on 10-year Treasuries shot up from around 4.4% to 5% when inflation had already come down from 9% to about 3%.
“Markets panicked,” says Arthur. Stocks dropped by 10%, and fears of another wave of regional bank failures returned because their bond portfolios took a hit. To calm things down, Treasury Secretary Janet Yellen started offering more liquidity by issuing Treasury bills.
This pulled money out of the Fed’s Reverse Repo Program and helped start a new rally in stocks and crypto. But Arthur told us that he noticed something odd. After Jackson Hole, the Reverse Repo Program balances started climbing.
Money market funds were parking cash in the RRP instead of T-bills because the yields had dropped. “It’s a sign that liquidity conditions are tightening,” Arthur warns.
He believes that the rising RRP balances are soaking up liquidity that could otherwise flow into assets like Bitcoin. And when Bitcoin slipped back to $64,000 and then dropped 10%, Arthur saw it as confirmation of his bearish stance.
He also doesn’t see an end to government spending. “The Fed hasn’t done a damn thing to control the real driver of inflation—government spending,” he says.
Arthur warns of market chaos as yields rise
With the U.S. running record-high deficits in peacetime and no political appetite to raise taxes, Arthur thinks we’re headed for more trouble. If the Fed doesn’t step in to tighten financial conditions, the bond market might do it instead, pushing yields even higher.
Arthur expects the 10-year yield could hit 5%, a level he believes will create chaos in financial markets. “Yellen might have to step in again,” he says.
He’s also keeping an eye on how this plays out politically, especially with the upcoming presidential elections.
But Arthur’s also not selling his crypto. He’s waiting for clearer signs that the Fed or the Treasury will make a decisive move. Until then, he’s bearish. “I’m still long on the fundamentals,” Arthur adds, “but the short-term looks ugly.”
