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Bitcoin Faces $15,000 Drop As US Teases 'Financial Collapse' - Arthur Hayes

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In his last blog post released on January 19, Arthur Hayes, former CEO of the BitMEX exchange, predicted a “global financial meltdown” thanks to the future economic problems of the United States.

Hayes: Cryptocurrencies “Will Be Smoked” at Fed Pivot

Bitcoin’s current rally probably shouldn’t be considered the start of a new bull run.

That’s the view of Arthur Hayes, who in a new treatise on US macroeconomic policy this week warned that the Federal Reserve’s current behavior would shift from restrictive to liberal, but would cause crypto assets to “get smoked”.

With US inflation easing, the Fed is the focus of virtually all crypto analysts this year as they estimate the likelihood of a “pivot” policy away from quantitative tightening (QT) and interest rate hikes to fixed rates. and then decreasing, and potentially even quantitative facilitation (QE).

This essentially involves a shift from draining the economy of liquidity to injecting it back in, and while this practice has led to new all-time highs for Bitcoin from 2020 onwards, the same phenomenon won’t be easy next time around, Hayes believes.

“If a half-trillion dollar removal in 2022 created the worst bond and stock performance in a few hundred years, imagine what will happen if twice that amount is removed in 2023,” he wrote.

“The reaction of markets when money is injected versus withdrawn is not symmetrical – and as such, I expect the law of unintended consequences to bite the Fed in the ass as it continues to withdraw liquidity.”

As such, instead of a smooth QT transition, Hayes is banking on extreme circumstances that force the Fed to act.

“Some part of the US credit market crashes, which leads to a financial meltdown across a wide swath of financial assets,” he explained.

“In a similar response to the action taken in March 2020, the Fed calls an emergency news conference and halts QT, cuts rates significantly, and resumes Quantitative Easing (QE) buying bonds once more.”

This, in turn, means “risky crater in asset prices”.

“Bonds, stocks and every cryptocurrency under the sun goes up in smoke as the glue that holds the dollar-based global financial system together dissolves,” the blog post continues.

Current estimates, as shown by the CME Group’s FedWatch tool, overwhelmingly favor the Fed slowing the pace of rate hikes in its next decision on Feb. 1.

Fed target rate odds chart. Source: CME Group

Planning a rerun in March 2020

Hayes is far from the only one suspecting that Bitcoin is a firm “buy” at the moment after two weeks of near-vertical price growth.

Related: Bitcoin Sees New 4-Month High as US PPI, Retail Data Publish ‘Big Mistakes’

As Cointelegraph reported, several commentators are betting that new macro lows will yet appear, with BTC/USD hitting its bottom from the fourth quarter of 2022.

Those who take a leap of faith and pile up now face serious risk before reward.

“This scenario is less ideal because it would mean that everyone who is buying risky assets now would be expecting huge reductions in performance. 2023 could be just as bad as 2022 until the Fed pivots,” Hayes wrote, calling this scenario a “base case.”

If this means a retest of the 2022 lows, the $15,000-$16,000 area will be a key zone of interest going forward.

“I will know that the market has probably bottomed out because the crash that happens when the system temporarily breaks will either hold the previous lows of $15,800 or not,” the blog post concludes.

“It really doesn’t matter what level is ultimately reached on the down draft, because I know the Fed will subsequently act to print money and avoid another financial meltdown, which in turn will mark the local bottom of all risky assets. And then I get another setup similar to March 2020, which requires me to put the truck in reverse and buy cryptocurrencies with both hands and a shovel.”

Bitcoin (BTC) faces a drop to $15,000 “or lower” as part of a mass risk asset capitulation, says Arthur Hayes.

BTC/USD (Bitstamp) 1 hour candlestick chart. Source: TradingView

BTC/USD consolidated at $20,800 at the open on Wall Street on Jan. 19, data from Cointelegraph Markets Pro and TradingView showed.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cointelegraph.