Fed Rate Cuts Could Crash Crypto Market, Warns Arthur Hayes

At the Token2049 event on September 18, Arthur Hayes, co-founder of BitMEX, warned that upcoming interest rate cuts by the U.S. Federal Reserve could trigger a major downturn in the crypto market.

Hayes argued that the expected 25 to 50 basis point reduction might destabilize markets, including Bitcoin, if implemented. He emphasized the risks of a 50 bps cut, estimating a 60-70% chance it could happen, but labeled such a move as a potential error under current economic conditions.

He explained that a rate cut would reduce the interest rate gap between the U.S. dollar and the Japanese yen, which could lead to the unwinding of carry trades and market disruptions. Hayes pointed out that a similar situation nearly caused a crisis when the Bank of Japan raised interest rates.

Hayes has been earning 5.5% on Treasury bills over the past year and noted that low-yielding assets, like Ethereum, have struggled to compete.

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However, he suggested Ethereum could become more appealing if Treasury yields drop following the anticipated rate cuts. Hayes advised considering investments in Ethereum and other assets like Pendle and Ethena’s USDe as market conditions shift.

He also recommended looking into Treasury bonds, proposing an approach where bonds are structured to provide interest-paying certificates to investors.