Former BitMEX CEO Arthur Hayes warns that Bitcoin (BTC) will be just one of the risk assets to ‘crater’ as the Federal Reserve is forced to abandon quantitative tightening in the future.
“This time the same phenomenon will not have a straight course!”
Bitcoin’s current rally should probably not be taken as the start of a new bull run. That’s the view of Arthur Hayes, who warned in a new review this week on U.S. macroeconomic policy that current Federal Reserve behavior will shift from restrictive to liberal, but will result in a ‘smoke-up’ of crypto assets.
With US inflation easing, the Fed is the focus of almost every crypto analyst this year. That’s because they predict the probability of a “return” from quantitative tightening (QT) and interest rate hikes to stable and then falling rates, and potentially even quantitative easing (QE). This essentially involves a move from draining the liquidity economy to injecting it back. Also, while this practice has led to all-time highs for Bitcoin from 2020, Hayes believes the same phenomenon won’t be a flat course next time. In this context, Hayes makes the following statement:
If subtracting half a trillion dollars in 2022 produced the worst bond and stock performance in several centuries, imagine what would happen if that amount was doubled in 2023. The markets’ reaction is not symmetrical when money is injected and withdrawn. Therefore, I expect the unintended consequences law to bite the Fed as it continues to attract liquidity.
Hayes: Bitcoin and altcoins will ‘smoke’ on Fed pivot
Therefore, instead of a smooth transition from QT, Hayes is betting on extreme conditions that force the Fed to take action. In this regard, he makes the following assessment:
Part of the US credit market is in distress. This leads to a financial meltdown across a wide range of financial assets. Similar to the action it took in March 2020 in this scenario, the Fed holds an emergency press conference to halt QT, lower rates significantly, and restart QE by purchasing bonds once again. This means ‘risky asset price crater’.
“As the glue that holds the global US dollar-based financial system together melts, bonds, stocks, and every cryptocurrency under the sun are smoking,” the blog post continues. Meanwhile, current forecasts are overwhelmingly in favor of reducing the pace of rate hikes at the Fed’s next February 1 decision, as CME Group’s FedWatch Tool shows.
Hayes plans March 2020 repeat for Bitcoin
Arthur Hayes is not alone in suspecting that Bitcoin is now a definitive ‘buy’ after two weeks of near-vertical price growth. cryptocoin.comAs you follow, various analysts are betting that BTC will see new macro lows as it takes its ground from Q4 of 2022. Therefore, those who take a leap of faith and now pile up face serious risks before the reward. Hayes states the following in his scenario, which he calls the ‘base case’:
This scenario is less ideal. Because it means that anyone who buys risky assets right now will experience huge declines in performance. 2023 could be as bad as 2022 until the Fed returns.
If this means retesting the 2022 lows, the $15,000 to $16,000 area will be a key area of interest going forward. The blog post highlights the following:
I will know that the market has probably bottomed out. Because when the system is temporarily broken, the crash that occurs will either hold the previous $15,800 or not. It doesn’t really matter what level is ultimately reached in the downdraft. Because I know the Fed will take action later to print money and prevent another financial collapse. Moreover, this will mark the local bottom of all risky assets. And then I predict another setup similar to March 2020. Which requires me to back up the truck and buy crypto with two hands and a shovel.
Arthur Hayes says Bitcoin (BTC) is facing a drop of $15,000 ‘or less’ as part of massive risk asset capitulation.
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