Arthur Hayes Says the Fed Rate Cut Could Cripple Crypto Market

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

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

Rate Cut Is a Bad Idea: Hayes

The Fed will announce its interest rate call later today. Since 2020, the central bank has hiked its interest rate to curb inflation post-COVID. Following Fed chair Jerome Powell’s keynote address from last month, there is much anticipation for a rate cut, which would entail more cash flow in the country.

Hayes noted that while the incoming rate cut would ease the liquidity level in the country, it would trigger an inflation problem. He added that this could strengthen the Japanese yen and cause a downtrend for risk assets denominated in U.S. dollars, including crypto assets.

“The rate cut is a bad idea because inflation is still an issue in the U.S., with the government being the biggest contributor to the sticky price pressures. If you make borrowing cheaper, it adds to inflation,” the BitMEX co-founder said.

Last month, Hayes likened the Fed’s rate cut to a “Sugar High,” stressing that the interest reduction will have a short-term impact on the crypto market. He compared this with the short-term effect of sugary food, which gives a brief energy boost. The BitMEX co-founder added that Powell’s August announcement of an impending rate cut reduced the interest rate gap between the U.S. dollar and the Japanese yen.

Analysts expect the Bank of Japan (BoJ) to increase interest rates shortly as the Fed downsizes its rate, hopefully to regulate the USD/JPY market.

Hayes Says Interest Rate Going 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 this figure to zero.

“The initial reaction is going to be negative and the central bank’s response will be to do even more [cuts] to stem the crisis. So, I think that 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.