The Relationship Between Bitcoin and Interest Rates Is Breaking Down: Arthur Hayes
KOREA BLOCKCHAIN WEEK, SEOUL – By all accounts, the United States should be heading into a recession, and risk assets like bitcoin, or tech stocks such as Nvidia (NVDA), should be nowhere near their current values, thanks to the steepest Federal Reserve (Fed) rate hike cycle in decades. But the opposite is happening. Economists have increasingly course corrected on their recession forecasts, bitcoin has doubled since crypto exchange FTX’s multibillion collapse, and Nvidia shares are soaring.
“It’s different than what’s happened before. The standard playbook is starting to break down,” Arthur Hayes, the founder of BitMEX and current Chief Investment Officer at Maelstrom, said during a keynote at Korea Blockchain Week attended by CoinDesk.
Hayes argued that the Federal Reserve’s moves to raise interest rates to combat inflation have had unintended consequences on the broader economy.
Rising financial asset prices can boost capital gains taxes and government revenue, but when the Fed raises interest rates, these prices can stagnate, reducing tax revenue, Hayes opined.
“All the while, this, coupled with the political hostility of austerity, increases deficits, leading the U.S. Treasury to issue more bonds. The resulting interest payments to the wealthy stimulate spending and nominal GDP growth, creating a paradox where the Fed’s rate hikes inadvertently fuel economic growth,” Hayes said.
“Whether the Fed raises or cuts, we’re in a good position as a cryptocurrency industry,” Hayes added.