Will the Federal Reserve stop raising interest rates next month? For bitcoin investors, the answer may not actually matter.
According to BitMEX co-founder Arthur Hayes, Bitcoin’s price and inflation will rise in tandem precisely because of hawkish central bank policy – contrary to what modern monetary theory would suggest.
How Rising Rates Will Increase Inflation
In a Thursday blog post titled “Patience is Beautiful,” Hayes outlined why the economy’s ever-expanding debt-to-GDP ratio will cause traditional economic “laws” to “break down.” This includes the idea that rising interest rates cause the money supply and inflation to fall. He writes:
“Regardless of which path the Fed chooses, be it to hike or cut rates, they will accelerate inflation and catalyze a general rush for the exits from the parasitic fiat monetary financial system.”
Data from US Debt Clock shows that the United States government is currently $31.8 trillion in debt. That’s a far cry from the nation’s $26.4 trillion GDP and its relatively meager $4.6 trillion yearly tax revenue.
President Joe Biden and House Speaker Kevin McCarthy recently unveiled a draft bill to avert an incoming debt crisis after the nation reached its $31.4 trillion debt limit in January. The deal would suspend the debt ceiling entirely until 2025, but require a number of cost-cutting measures to ensure it doesn’t spiral out of hand until then.
Hayes predicted that the debt ceiling will indeed be lifted sometime this summer, at which point the US Treasury “must issue trillions of dollars worth of debt.” This would drive up interest rates on short-term government debt, incentivizing bank depositors to withdraw their holdings en masse as they are incentivized to lend to the government, rather than the bank.
As such, the Federal Reserve will be forced to cut rates, making banks profitable again, but causing inflation to spike as a consequence. Alternatively, the Fed could keep raising rates – but this would only incentivize more bank failures, which will be paid off by the Federal Deposit Insurance Corporation with more money printing.
“Gold, Bitcoin, AI tech stocks, etc. will all be beneficiaries of this “wealth” that is printed by the government and handed out as interest,” Hayes said.
Stay Patient Says Hayes
In the short term, Hayes said he expects Bitcoin to hold firm – but that a bull market will likely begin in the late third/early fourth quarter of the year.
“Money printing, yield curve control, bank failures, etc. will all come to pass,” he wrote. “Between now and then, chill the fuck out… “Because come this fall, you better be strapped into your trading spaceship, ready for liftoff.”
Last month, Hayes said he doesn’t expect Bitcoin to rise to a new all-time high ($70,000) before the end of the year, but that 2024 is “gonna be a good year.”
His opinion mirrors that of the on-chain market analysis firm CryptoQuant, which told CryptoPotato in April that institutional investors are bitcoin eye for later this year. A new all-time high, they said, could be reached by Q2 2024.