Bitcoin’s Win Is Coming as Fed Prints More ‘Fiat Toilet Paper’, Says BitMEX Co-Founder Arthur Hayes
The Bitcoin price has once again retraced back to $26,000 after some recovery pump earlier this week. On the technical chart, BTC continues to show bearish momentum with its price dropping under the 200-day moving average (DMA).
In a sharp-worded attack, BitMEX co-founder Arthur Hayes said that “risk assets of finite supply” are likely to win as the Fed would lose its quest to fight against inflation. On Wednesday, August 23, Hayes published a blog post arguing that the Fed is sucking money from one area of the economy while injecting it into the other.
He further expects BTC to continue to outperform in the long term as long as the Fed’s battle against inflation remains “quixotic”. “Bitcoin has a finite supply, and therefore as the denominator of fiat toilet paper grows, so will Bitcoin’s value in fiat currency terms,” he wrote.
Apart from major tech companies and cryptocurrencies, the former CEO argues that there’s no investment option more lucrative than placing funds with the Fed, yielding almost 6%.
He further elucidated the shortcomings in the Fed’s approach. Notably, the frequent elevation of the Reverse Repo Program (RRP) and Interest on Reserve Balances (IORB) forces the central bank to distribute billions more monthly to depositors. This offsets the money supply impact of the Fed’s quantitative tightening efforts.
The central bank’s strategy contrasts with that of Paul Volcker, a former Fed Chair known for taming inflation in the 1980s using stringent monetary policies. Hayes clarified that back in the 1980s, the Fed may have altered its policy rate but didn’t meticulously synchronize RRP and IORB rates with it.
“If the Fed believes that to kill inflation it must both raise interest rates and reduce the size of its balance sheet, then it is cutting its nose to spite its face. The only variable that changed from the Fed’s perspective was the size of its balance sheet,” wrote Hayes.
All Eyes on Fed’s Jackson Hole Meeting
The Bitcoin price has once again retraced back to $26,000 after some recovery pump earlier this week. On the technical chart, BTC continues to show bearish momentum with its price dropping under the 200-day moving average (DMA).
All eyes will be on the Fed’s Jackson Hole meeting later today on Friday. Fed Chair Jerome Powell will further disclose his decision on the interest rate cycle going ahead. While many expect a pause on the rate hikes, the Fed could throw a surprise considering the stick inflation.
Currently, the Federal Reserve is withdrawing $80 billion monthly via quantitative tightening (QT) while infusing $22.53 billion into banks. Although this might seem “restrictive”, Hayes approximated that increasing interest expenses on US government debt are channeling an additional $80 billion per month into the economy. He estimated a net liquidity injection of around $23 billion monthly.
Hayes anticipates the Fed will eventually reverse QT as the US. Treasury finds alternative buyers for its debt, driven by the need to prevent a catastrophic default. However, the market isn’t acknowledging this as imminent and hasn’t shifted its investments into Bitcoin yet.
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
