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Bitcoin faces $15K crash as US sparks ‘financial meltdown’ — Arthur Hayes

In his newest weblog put up launched on Jan. 19, Arthur Hayes, the previous CEO of the BitMEX alternate, predicted a “global financial meltdown” due to future United States financial woes.

Hayes: Crypto will “get smoked” in Fed pivot

Bitcoin’s present rally ought to probably not be taken as the beginning of a brand new bull run, Hayes says within the contemporary treatise on U.S. macroeconomic coverage, warning that crypto property will “get smoked” when Federal Reserve coverage flips from restrictive to liberal. 

With U.S. inflation easing, the Fed is the main target of virtually each crypto analyst this 12 months as they estimate the chance of a coverage “pivot” away from quantitative tightening (QT) and rate of interest hikes to flat after which reducing charges, and probably even quantitative easing (QE).

This primarily includes a transfer away from draining the economic system of liquidity to injecting it again in, and whereas that follow led to new all-time highs for Bitcoin starting in 2020, the identical phenomenon wouldn’t be plain crusing subsequent time round, Hayes believes.

“If a removal of half a trillion dollars in 2022 created the worst bond and stock performance in a few hundred years, imagine what will happen if double that amount is removed in 2023,” he wrote.

“The reaction of the markets when money is injected vs. withdrawn is not symmetrical — and as such, I expect that the law of unintended consequences will bite the Fed in the ass as it continues to withdraw liquidity.”

As such, reasonably than a clean transition away from QT, Hayes is betting on excessive circumstances forcing the Fed to behave.

“Some part of the US credit market breaks, which leads to a financial meltdown across a broad swath of financial assets,” he defined.

“In a response similar to the action it took in March 2020, the Fed calls an emergency press conference and stops QT, cuts rates significantly and recommences Quantitative Easing (QE) by purchasing bonds once more.”

This in flip means “risky asset prices crater.”

“Bonds, equities, and every crypto under the sun all get smoked as the glue that holds together the global USD-based financial system dissolves,” the weblog put up continues.

Current estimates, as proven by CME Group’s FedWatch Tool, overwhelmingly favor the Fed decreasing the tempo of fee hikes at its subsequent choice on Feb. 1.

Fed goal fee chances chart. Source: CME Group

Planning a March 2020 rerun

Hayes is way from alone in being suspicious of Bitcoin (BTC) being a agency “buy” at current after two weeks of near-vertical value progress.

Related: Bitcoin sees new 4-month excessive as US PPI, retail knowledge put up ‘big misses’

As Cointelegraph reported, varied commentators wager that new macro lows will nonetheless seem, with BTC/USD taking out its flooring from the fourth quarter of 2022.

Those taking a leap of religion and piling in now thus face critical danger earlier than reward.

“This scenario is less ideal because it would mean that everyone who is buying risky assets now would be in store for massive drawdowns in performance. 2023 could be just as bad as 2022 until the Fed pivots,” Hayes wrote, nonetheless calling that state of affairs his “base case.”

If meaning a retest of the 2022 lows, the realm between $15,000 and $16,000 will likely be a key zone of curiosity going ahead.

“I will know that the market has probably bottomed, because the crash that happens when the system temporarily breaks will either hold the previous $15,800 lows, or it won’t,” the weblog put up concludes.

“It doesn’t really matter what level is ultimately reached on the down draft because I know the Fed will subsequently move to print money and avert another financial collapse, which will in turn mark the local bottom of all risky assets. And then I get another setup similar to March 2020, which requires me to back up the truck and purchase crypto with two hands and a shovel.”

Bitcoin faces a drop to $15,000 “or lower” as a part of the mass danger asset capitulation, Hayes says.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

BTC/USD was consolidating at $20,800 on the Jan. 19 Wall Street open, knowledge from Cointelegraph Markets Pro and TradingView present.

The views, ideas and opinions expressed listed here are the authors’ alone and don’t essentially mirror or signify the views and opinions of Cointelegraph.