The two-day meeting of the Federal Open Market Committee (FOMC) concludes on Wednesday. The decision to cut interest rates for the first time since 2020 will likely be made at this meeting. For BitMex exchange co-founder Arthur Hayes, both stocks and cryptocurrencies will plummet after the announcement.
During the Token2049 event held in Singapore, the expert said that he expects a cut of 70 or at least 50 basis points. Although this theoretically benefits financial markets, the Federal Reserve (Fed) is making “a terrible mistake” that will probably end up harming the economy as a whole.
Hayes believes that the decision to cut the rate comes at a time of huge spending by the US government. As a result, this would lead to a mass of liquidity in the markets, which would end up creating problems instead of boosting risk assets. In his opinion, the accelerated rate cuts in the three remaining FOMC meetings in 2024 will eliminate the dollar-yen differential.
This will cause serious problems related to the issuance of the dollar and, as a consequence, these will have the worst impact on the markets, he explains.
While many people are eager for a rate cut, indicating that they are confident that this will boost the stock market and other sectors, I believe that markets could actually crash within a few days after the Fed sets the new rates.
Arthur Hayes, former executive and founder of BitMex.
Arthur Hayes during Token2949. Source: Medium
Cryptocurrencies and stocks will fall back, says Arthur Hayes
For Arthur Hayes, both cryptocurrencies and stocks will suffer a sharp decline in the coming days. In a few minutes, the FOMC meeting will conclude and the magnitude of the first cut in the price of money in four years will be known. Although Hayes believes it will be a massive reduction, the markets are betting that it will be 25 basis points, or 0.5% in an extreme case.
While investors generally assume that equities will benefit from the cut, Hayes thinks otherwise. His pessimistic view is based on the performance of the economy during the shock of August 5. At that time, the change in outlook against the carry trade strategy with the Japanese yen caused the markets to plummet.
“We saw what happened a few weeks ago, when the yen went from 162 to about 142, over about 14 trading days, which caused almost a mini financial collapse,” he warns, adding that the next few days will see a repeat of that “financial stress.”
On the other hand, Arthur Hayes pointed out that investments in cryptocurrencies, especially in the larger ones, are now similar to Treasury bonds. In his opinion, the yield of some debt issues of 5% exceeds coins such as ETH, which he described as an “Internet bond.”
According to him, bonds do not carry the same level of risk as cryptocurrencies. That is why it is safer for large investors to buy debt than digital currencies. Despite this, he stressed that he continues to buy significant amounts of cryptocurrencies.
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