Entrepreneur Reveals Risks of Fed Rate Cuts to Crypto

Todaysgist, News – Maelstrom chief investment officer and BitMEX co-founder Arthur Hayes predicted that risk assets, including cryptocurrencies, could plunge in the coming days following the Federal Reserve’s (The Fed) first interest rate cut this week.

The Fed is expected to announce its first interest rate cut on Thursday (9/19), kicking off a cycle of liquidity easing that has historically boded well for Bitcoin (BTC).

However, according to Hayes, the upcoming interest rate cut will add to inflation problems and cause the Japanese Yen to strengthen, leading to broad risk aversion.

“Rate cuts are a bad idea because inflation is still a problem in the U.S., with the government being the biggest contributor to sticky price pressures. If you make borrowing cheaper, that will add to inflation,” Hayes said on the sidelines of the Token2049 conference in Singapore, as quoted by Coindesk, Thursday (9/19).

“The second reason is that the interest rate differential between the US and Japan is narrowing with the rate cut. That could lead to a sharp appreciation of the Yen and trigger the unwinding of the Yen carry trade,” he added.

Markets felt the destabilizing effects of Yen strength and the resulting unwinding of Yen carry trades in early August after the Bank of Japan raised its benchmark borrowing cost to 0.25% from zero.

Bitcoin itself has fallen in price from around USD 64,000 to USD 50,000 in a week, according to CoinDesk data.

USD/JPY is the only thing that matters in the short term, says Hayes.