The cryptocurrency community is turbulent: the prospect of lower interest rates raises illusions about rapid price increases for Bitcoin & Co. But is this euphoria really justified, or are we facing a bad surprise?
Arthur Hayes, co-founder of cryptocurrency exchange Bitmex and co-founder of Bitcoin, warns against early celebration.
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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 rise dramatically after Powell confirmed that the Fed’s long-awaited transformation is imminent. But Hayes calls for caution: the long-term effects may be more complex than many currently think.
Hayes said the market reacted jubilant to Powell’s statement, although narrowing interest rate differentials between the dollar, pound, euro and 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, combined with a stronger yen, could ‘dismantle’ the so-called yen trade, likely to have catastrophic 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, the yen’s appreciation could lead to the dismantling of global investment, with serious consequences for all risky assets.
Hayes points to the example in 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 also convinced that a similar scenario is possible with the next ‘Allen earthquake’.
In such a crisis, the Fed is likely to inflate its balance sheet and dramatically increase the money supply – a short-term solution with long-term consequences – dubbed ‘real food’ for markets.
In conclusion, Hayes believes that despite potential short-term recessions, cryptocurrency opportunities are very positive. “They’re going to turn on the money printer and they’re going to increase the money supply dramatically,” he speculates. And ‘for assets with limited supply like Bitcoin, this means a journey at the speed of light to the moon!’
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Time will tell whether this prediction will ultimately come true. But one thing is certain: the announced rate cuts will leave no one unaffected, and could plunge the financial world into chaos or help Bitcoin and other cryptocurrencies reach new heights.
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