Arthur Hayes, co-founder of BitMEX, has compared the U.S. Federal Reserve’s recent actions to a fleeting “sugar high” for the economy, suggesting that this could lead to a temporary boost with lasting impacts on the crypto market.
In his latest blog post, Hayes argued that recent central bank decisions could drive investors toward Bitcoin and other cryptocurrencies as they seek alternatives. He specifically pointed to the U.S. Federal Reserve’s rate cuts as a trigger for a possible unwinding of the Japanese yen carry trade, which, he warns, could “derail the party” unless the Federal Reserve increases the money supply.
Hayes claimed that while lower interest rates may temporarily support traditional markets, they carry profound consequences for both fiat currencies and crypto assets. He points out that as the interest rate gap closes, the yen is likely to appreciate, potentially causing global market disruptions and forcing central banks to expand their balance sheets further.
This balance sheet expansion, according to Hayes, is “real food” because it would inject liquidity into the markets and could potentially drive up the value of assets with limited supply, such as Bitcoin.
He concluded his article by stating,
“Fiat liquidity conditions couldn’t be more favourable as we approach the final stretch of the third quarter. As crypto holders, we have the following tailwinds at our backs:”
Notably, Hayes’s comments come as the crypto market reels from the effects of the Japanese’s central bank’s recent disruption of “yen carry trade.” In late July 2024, the Bank of Japan (BoJ) raised short-term government bond rates from 0% to 0.25%, following a March hike. The USD/JPY exchange rate dropped from 153 to 145 yen per dollar, making yen-denominated loans more expensive. Over $1 billion in leveraged trading positions were liquidated between August 4-5.
READ MORE: How the Bank of Japan Disrupted the Yen Carry Trade and Impacted Crypto Markets
The BoJ’s action also triggered an 18% drop in Bitcoin (BTC)’s price and a 26% drop in Ethereum(ETH)’s over the next seven days, while the S&P 500 fell by over 5% on August 5. However, despite the crash, Bitcoin rebounded to over $57,000 by August 7, and altcoins gained 5% to 10%, signalling a market recovery.
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