While the Federal Reserve’s announcement of interest rate cuts sparked excitement, BitMEX co-founder Arthur Hayes warns that the real impact on Bitcoin may be more complex than it seems.
Rate cuts, the savior?
Federal Reserve Chairman, Jerome Powell confirmed that the long-anticipated interest rate cuts are on the horizon.
This news caused an immediate surge of optimism in the markets, often referred to as a sugar high, as investors anticipated a boost for risky assets like Bitcoin.
Conventional wisdom suggests that lower interest rates make borrowing cheaper, but also encouraging investment in assets such as cryptocurrencies.
This pattern was seen during the pandemic when Bitcoin’s price skyrocketed from March 2020 to April 2021.
Hayes’ skepticism
Hayes argues that the situation is more complicated than just lower rates leading to a Bitcoin rally.
He points out that the expected rate cuts by the Federal Reserve, along with similar actions by the Bank of England and the European Central Bank, could narrow the interest rate gap between these currencies and the Japanese yen.
When this happens, the so-called yen carry trade, where investors borrow yen at low rates to invest in stronger currencies, could start to unravel, leading to a decline in global markets.
A similar event already occurred in early August when the Bank of Japan raised rates for the first time in seventeen years, briefly causing Bitcoin to dip below $50,000.
It’s about supply, and limits
Hayes speculates that if the markets face another crisis linked to the yen, the U.S. Federal Reserve might respond by expanding its balance sheet and increasing the money supply, a move he describes as “real food” with longer-lasting effects.
This scenario might lead to short-term market instability, Hayes believes that in the long run, the increased money supply would be highly beneficial for assets with limited supply, like Bitcoin.
He predicts that such a response could drive Bitcoin’s price to unprecedented levels, no matter what potential short-term economic challenges arise.
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