BitMEX co-founder Arthur Hayes believes the Federal Reserve will lose its bid to fight inflation, which will ultimately benefit “risk assets with limited supply” like Bitcoin.
In a blog post published Wednesday, the essayist argued that the Fed is taking money from one area of the economy and pumping money into another.
As long as the Fed’s anti-inflation strategy remains “unworldly,” assets like Bitcoin are likely to rise over the long term.
“The supply of bitcoin is finite, and as the denominator of fiat toilet paper grows, so does the value of bitcoin in fiat currency,” Hayes wrote. Big tech and crypto aside, the ex-CEO believes nothing will deliver a better return for investors than park their money with the Fed and return nearly 6%.
He went on to explain why the Fed’s tactics were flawed.
Specifically, with the continued increase in its reverse repo program (RRP) and interest on reserve assets (IORB), the central bank is being forced to pay out more billions to depositors each month, counteracting the effect of the Fed’s quantitative tightening (QT) on the money supply ; sale of bonds on the open market).
“If the Fed thinks that in order to kill inflation it must both raise interest rates and reduce the size of its balance sheet, then it cuts its nose in defiance,” Hayes wrote.
The central bank’s approach differs from that of Paul Volcker – a former central bank chairman who is credited with suppressing inflation through tightening monetary policy in the 1980s. As Hayes explained, while the Fed adjusted its policy rate in the 1980s, it did not fine-tune EIA and IORB rates to adjust them.
“The only variable that changed from the Fed’s perspective was the size of its balance sheet,” Hayes said.
Currently, the Fed is withdrawing $80 billion a month from the market via QT while injecting $22.53 billion into the banks. While that still seems “restrictive,” Hayes estimates that rising interest expense on US government debt is feeding another $80 billion a month back into the economy. “I’m estimating about $23 billion of net liquidity injected each month,” he said.
Finally, Hayes said he expects the Fed to reverse course on the QT as the US Treasury is crammed with alternative buyers of its debt and is desperate to avoid a catastrophic default. However, the market does not seem to realize that this is imminent and has therefore not yet invested its capital in Bitcoin.
“We have to go down to get up,” Hayes concluded. “I will not fight the market, I will just remain calm and accept my votes.”
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Source : decrypt.co