A co-founder of BitMEX, Arthur Hayes, has presented a contrasting viewpoint on the relationship between Bitcoin and interest rates, suggesting that traditional economic theories may not apply to the unique challenges faced by governments and central banks today. Hayes argues that as the US government grapples with a massive debt burden, conventional economic logic would crumble. He believes that if monetary policies tighten, bondholders may turn to riskier assets like Bitcoin for better returns. Hayes also suggests that Bitcoin’s four-year cycles may be influenced by central banks’ low-rate policies.

High GDP Growth Challenges Conventional Economic Theory

Hayes points to the astonishingly high nominal GDP growth, as indicated by the Atlanta Fed’s GDPNow forecast, which contradicts conventional economic theory that a credit-sensitive economy should falter as interest rates rise. Instead, Hayes explains that the government pays more interest to wealthy bondholders as rates increase, leading to increased spending on services and continual GDP growth. As long as the economy outpaces the government’s debt obligations, Hayes argues that bondholders may seek riskier assets like Bitcoin.

Inflation Control Efforts Favor High-Risk Assets

Hayes suggests that the Federal Reserve’s efforts to combat inflation would ultimately benefit finite supply risk assets like Bitcoin. He posits that the Fed’s strategy involves diverting money from one part of the economy to another, creating an uncertain environment for taming inflation. In response to a tightening Fed, Bitcoin could thrive as the central bank’s actions inadvertently increase the money supply. Hayes acknowledges the positive influence of low interest rates on Bitcoin’s price and asserts that the asset’s relationship with central bank policy is positively convex.

FAQ

What is BitMEX?

BitMEX is a cryptocurrency exchange and trading platform that offers leveraged trading of various digital currencies.

Who is Arthur Hayes?

Arthur Hayes is a co-founder of BitMEX and a well-known macro-analyst in the cryptocurrency industry.

What is the Federal Reserve’s benchmark rate?

The Federal Reserve’s benchmark rate refers to the interest rate at which banks can borrow from the central bank. It is used as a tool to control inflation and stimulate or slow down economic growth.

How do central banks’ low-rate policies affect Bitcoin?

Central banks’ low-rate policies create an environment where investors have room to speculate, potentially leading to higher returns on risk assets like Bitcoin. Analysts suggest that Bitcoin’s four-year cycles may be linked to these low-rate policies.