In his latest blog post released on January 19, Arthur Hayes, the former CEO of BitMEX exchange predicted “global financial weakness” due to the economic problems of the United States in the future.
Hayes: Crypto will “smoke” on Fed pivot
The current Bitcoin rally should not be considered the start of a new bull run.
This is the opinion of Arthur Hayes, who in a new treatise on US macroeconomic policy this week warned that the behavior of the Federal Reserve will now turn from restrictive to liberal, but it will cause crypto assets to “smoke.”
With the easing of US inflation, the Fed is the practical focus of every crypto analyst this year because they estimate the possibility of a policy “pivot” away from quantitative tightening (QT) and the increase of interest rates to be flat and then reduce the rate, and possibly quantitatively. easing (QE).
This actually involves a move from reducing the economy of liquidity to re-injecting it, and while this practice led to the highest level for Bitcoin since 2020, the same phenomenon will not be released in the future, Hayes believes.
“If removing half a trillion dollars in 2022 makes bonds and stocks perform the worst in several hundred years, imagine what will happen if double that amount is removed in 2023,” he wrote.
“The market reaction when money is injected vs withdrawn is not symmetrical – and as such, I expect that the law of unintended consequences will kick the Fed in the ass as it continues to withdraw liquidity.”
At that time, instead of a smooth transition away from QT, Hayes was in an extreme situation forcing the Fed to act.
“Some parts of the US credit market were damaged, which led to a financial crisis in some financial assets,” he explained.
“In a similar response to the actions taken in March 2020, the Fed called an emergency press conference and ended QT, cut rates significantly and started Quantitative Easing (QE) by buying back bonds.”
This means “risky asset price crater.”
“Bonds, equities, and every crypto under the sun were all smoked as the glue holding the global USD-based financial system together recently,” the blog post continued.
Current estimates, as indicated by CME Group’s FedWatch Tool, overwhelmingly favor the Fed lowering rates at its next decision on February 1.
Planning a March 2020 repeat event
Hayes is far from just suspecting Bitcoin to be a real “buy” right now after two weeks of near-vertical price growth.
Related: Bitcoin sees new 4-month high as US PPI, retail data post ‘big lag’
As reported by Cointelegraph, various commentators are betting that a new macro level is yet to be seen, with BTC/USD taking the floor from Q4, 2022.
Those who take a leap of faith and pile on now face serious risk before the reward.
“This scenario is less than ideal because it means that everyone who buys risky assets now will get a big drop in performance. 2023 could be as bad as 2022 until the Fed pivots,” Hayes wrote, but called the scenario a “base case.”
If it means a retest in 2022, the area between $15,000 and $16,000 will be the main zone of interest.
“I will understand that the market may be at the bottom, because the crash that occurs when the system is broken will continue to drop $ 15,800 before, or not,” the blog post concluded.
“It doesn’t matter what level is finally reached in the downward draft because I know that the Fed will continue to print money and prevent another financial collapse, which will mark the local bottom of all risky assets. Then I get another setup similar to March 2020, which requires me to back up the truck and buy crypto with both hands and a shovel.
Bitcoin (BTC) faces a drop to $15,000 “or lower” as part of a mass capitulation of risk assets, says Arthur Hayes.
BTC/USD consolidated at $20,800 at the opening of Wall Street on January 19, data from Cointelegraph Markets Pro and TradingView show.
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