Arthur Hayes believes the Federal Reserve will lose its battle against inflation, benefitting Bitcoin and other finite supply assets.
In a recent blog post, BitMEX co-founder Arthur Hayes expressed his belief that the Federal Reserve’s attempts to combat inflation will ultimately fail. He argues that as long as the Fed continues its current strategy, assets like Bitcoin will continue to rise in value. Hayes points out that Bitcoin has a finite supply, making it more attractive as the value of fiat currency decreases. He also suggests that parking money at the Fed and earning a 6% yield is a better option for investors than other alternatives.
The flaws in the Fed’s tactics
- The Fed’s Reverse Repo Program (RRP) and Interest on Reserve Balances (IORB) have forced the central bank to pay out billions more per month to depositors, counteracting its efforts to reduce the money supply.
- Hayes argues that if the Fed believes raising interest rates and reducing the size of its balance sheet will kill inflation, it is making a mistake.
- He compares the Fed’s current approach to that of former central bank chairman Paul Volcker, who successfully fought inflation in the 1980s without micromanaging RRP and IORB rates.
The current state of the market
- The Fed is currently draining $80 billion per month from the market through quantitative tightening (QT), but injecting $22.53 billion into banks.
- Hayes estimates that the rising interest expense on U.S. government debt is putting an additional $80 billion per month back into the economy.
- Despite these factors, Hayes believes the market has not yet moved its capital into Bitcoin, as it does not yet recognize the impending reversal of the Fed’s QT policy.
The future of the Fed and Bitcoin
Hayes expects the Fed to eventually reverse course on QT as alternative buyers of U.S. government debt become more prevalent. He believes the market will then shift its capital into Bitcoin. In the meantime, Hayes plans to “sit tight” and accept his stimulus payments.
Hot Take
Arthur Hayes argues that the Federal Reserve’s attempt to combat inflation will ultimately fail, benefiting assets like Bitcoin. He points out the flaws in the Fed’s current tactics and compares it to a more successful approach in the past. Despite the current state of the market, Hayes believes the Fed will reverse its policy on quantitative tightening, leading to increased investment in Bitcoin.
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