In a recent essay titled “Boom Times … Delayed,” Arthur Hayes, co-founder and former CEO of BitMEX, delves into why impending Federal Reserve rate cuts may not initially rejuvenate the crypto markets as many investors hope. Published on Substack, Hayes presents a detailed analysis interwoven with his perspective on broader economic policies and their implications on asset prices, including Bitcoin and cryptocurrencies.
A New Paradigm
Hayes starts by challenging the typical investor crypto reflex to “buy the fucking dip” (BTFD) in response to rate cuts—a behavior ingrained from past experiences during periods of subdued inflation in the US. He recalls times when the US Federal Reserve aggressively counteracted deflation threats with massive liquidity injections, benefiting asset holders significantly. However, Hayes argues that the current economic climate, shaped heavily by post-COVID fiscal policies and resulting inflation, alters the effectiveness of such monetary interventions.
Related Reading
“The effects of global fiscal policies to fight the COVID pandemic ended an era of deflation and ushered in an era of inflation,” Hayes states, emphasizing the delayed recognition of these inflationary impacts by central banks, which led to reactionary rather than preventative measures.
Focusing on the US Treasury market, Hayes points out its pivotal role due to the dollar’s status as the global reserve currency. He notes that even with the Fed’s aggressive rate hikes, the bond market has shown a belief in the central bank’s commitment to controlling inflation, as evidenced by the containment of the 10-year US Treasury yield below 4% during significant inflationary periods.
However, a turning point came during the Federal Reserve’s August meeting at Jackson Hole, where Chair Jerome Powell hinted at a rate cut, introducing uncertainty into the markets. Hayes critiques the continued high government spending, which he views as a political strategy rather than fiscal prudence, influencing inflation and consequently the Fed’s policy decisions.
“The primary driver of inflation that the Fed sought to quell, government spending, was left unchecked, leading the market to do the Fed’s job for it,” Hayes explains, referencing the swift rise in the 10-year Treasury yield following Powell’s announcement. This reaction underscores his argument…
Click Here to Read the Full Original Article at NewsBTC…
