Arthur Hayes says Fed rate cut could paralyze crypto market

BitMEX co-founder Arthur Hayes has reiterated his stance on the Federal Reserve’s incoming interest rate cut, calling it a “bad idea.”

In an exclusive interview with CoinDesk on the sidelines of the Token2049 event, Hayes echoed his concerns that risk assets like cryptocurrencies could crash soon after the Fed’s rate cut.

Rate cutting is a bad idea: Hayes

The Fed will announce its interest rate call later today. Since 2020, the central bank has raised its interest rate to curb post-COVID inflation. After Fed Chairman Jerome Powell’s keynote speech last month, there is much anticipation for a rate cut, which would bring more cash flow into the country.

Hayes pointed out that while the incoming rate cut would ease the level of liquidity in the country, it would cause an inflation problem. He added that this could strengthen the Japanese yen and lead to a downward trend in risk assets denominated in US dollars, including crypto assets.

“Cutting rates is a bad idea because inflation is still a problem in the US, and the government is the biggest contributor to stuck price pressures. If you make borrowing cheaper, it adds to inflation,” said the co-founder of BitMEX.

Last month, Hayes compared the Fed’s rate cut to a “Sugar High,” stressing that the interest rate cut will have a short-term impact on the crypto market. He compared it to the short-term effect of sugary foods, which give a brief energy boost. The BitMEX co-founder added that Powell’s announcement in August of an imminent rate cut narrowed the interest rate gap between the US dollar and the Japanese yen.

Analysts expect the Bank of Japan (BoJ) to raise interest rates shortly as the Fed tapers, hoping to regulate the USD/JPY market.

Hayes says the interest rate will go to zero

The Fed’s current interest rate is between 5.25% and 5.5%. The BitMEX co-founder believes the central bank will drop that figure to zero.

“The initial reaction will be negative and the central bank’s response will be to make even more (cuts) to curb the crisis. So I think cutting rates is a bad idea, but they’re going to do it anyway, and so they’re going to go to zero quickly,” Hayes said.

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