Arthur Hayes predicts short-term market crash on rate cuts: Token2049

As investors anticipate the first rate cut by the United States Federal Reserve in four years, BitMEX co-founder Arthur Hayes has shared his perspective on how these potential cuts could affect the cryptocurrency market.

Hayes delivered the keynote speech at Token2049 in Singapore on Sept. 18, “Thoughts on Macroeconomics Current Events.”

He addressed holding 5%-yielding Treasury Bills (T-bills) versus investing in cryptocurrencies in the context of potential market changes arising from the Fed’s rate cut decision that is expected to finally come out on Sept. 18.

Fed is making a “colossal mistake”

Before discussing the crypto implications behind potential rate cuts, Hayes slammed the Fed for considering cutting rates amid growing US dollar issuance and increased government spending.

“I think that the Fed is making a colossal mistake cutting rates at a time when the US government is printing and spending as much money as they ever have in peacetime,” the entrepreneur opined, adding:

“While I think a lot of people are looking forward to a rate cut, meaning that they think the stock market and other things are going to pump up the jam, I think the markets are going to collapse a few days after the Fed’s rates.”

According to Hayes, the potential rate cut — which he expects to stand at 75 or 50 basis points — will likely drive a market drop because it will “narrow the interest rate differential between the US dollar and the Japanese yen.”

“We saw what happened a few weeks ago when the yen went from 162 to about 142, over about 14 days of trading that caused almost a mini financial collapse,” the former BitMEX exec said, adding: “We’re going to see a revisit of that financial stress.”

T-bills yields versus crypto returns: “We could reignite the Ethereum bull market”

According to Hayes, income yields in many cryptocurrencies are “either slightly above or below the rate of T-bills,” which affects their price performance.

“Because why would you invest in a riskier DeFi application when all you can do is call up your broker and put your money in T-bills and make 5.5%,” the entrepreneur questioned.

Hayes looked into the returns of four cryptocurrencies: Ether (ETH), Ethena (ENA), Pendle (PENDLE) and Ondo (ONDO). He disclosed that he holds significant amounts in all of the mentioned tokens except for ONDO, which he said he hasn’t invested in.

Related: Bitcoin price action ‘tough to call’ after Fed rate decision — Zerocap

Hayes mentioned that Ether has been posting weak performance and has underperformed Bitcoin (BTC) in “a very big way.” He then referred to ETH as an “internet bond” with a 4% yield, which currently is losing to T-bills, but he still invests in it.

“If the yield drops quickly, which I believe it will, then Ethereum becomes money, and I’m earning more,” Hayes stated, adding:

“As we see rates quickly decline, as I expect, because the Fed is going to cut rates, markets are going to tank and they’re going to say, well let’s do more of that because that’s what’s going to fix things. We could reignite the Ethereum bull market.”