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BitMEX co-founder and Maelstrom CIO Arthur Hayes, sat down with Markets Daily host Jennifer Sanasie and Brad Keoun, CoinDesk’s Managing Editor of Technology and Protocols, to share his insights on whether a Fed rate cut of 25 or 50 basis points could lead to financial turmoil or a short-term rally. He also explores the potential ramifications of government spending, inflation and the reliance on fiat currency systems across major economies, and the dynamics of bitcoin in relation to traditional markets. The following transcript has been lightly edited for brevity and clarity.
Jenn Sanasie:
The Federal Reserve meeting is happening today in the United States. What do you think we're gonna see and how's it gonna impact markets?
Arthur Hayes:
So, the question is whether they're going to do 25 basis points or 50 basis points. I, at a high level, think that they should not be raising rates. I believe that the U.S. economy is quite strong. If you've seen the GDP prints over the last eight or nine quarters, it's been consistent growth. The U.S. government continues to spend an insane amount of money, which is keeping economic growth at a very fast pace. And, obviously, that helps with the re-election chances or election chances of Kamala Harris and her running mate which I think is the goal of the current Democratic administration.
So, the Fed cutting rates, when you have massive government spending, you have inflation that's above their target – I think it's a mistake. Inflation is going to accelerate into the fourth quarter if they decide to continue cutting rates. And, I think that the response is going to be if the markets start to falter, they're just going to do more of it and they’re going to make the problem even worse.
So, if they do 25 or 50, the markets react the opposite of what they believe. I think everyone believes that the markets are going to go up. If the more they cut, the more the markets go up with stocks, bonds, cryptos, all that kind of stuff. I actually take a contrarian view that, you know, the more they cut, the more the markets are going to dislike that. Maybe one or two trading days after the fact, but they're not going to learn their lesson. They're just going to keep doing more of it. So we're going to get a very quick, cutting cycle, so that's my view.
Sanasie:
Dig a little bit deeper into that. Let's say they cut rates. How do you think the markets will react? And, more specifically, how do you think the crypto markets will react?
Hayes:
So I believe, and I've written extensively about this, that the most important macroeconomic variable is the dollar-yen exchange rate. And so, the dollar exchange rate weakened a lot because the BOJ cut rates at zero or negative, and the Fed and every other major central bank raised rates starting in March of 2022, so the differential widened a lot. The dollar-yen went to about 162 on the top side. And then a few things happened. The Fed signaled that it was ready to start cutting rates in the summer of this year. And the BOJ indicated that it would start raising rates and it did raise rates 15 basis points on July 31. And, we saw in the subsequent week, markets were down 10% around the world.
If the Fed's gonna do 25 or 50 or however many basis points, it's gonna go down. And now in the subsequent meetings, it's gonna continue to narrow that differential. Dollar-yen will continue to strengthen, the yen strengthens, the actual nominal value goes down, and people continue to unwind positions, which removes leverage from the system, stocks go down, and I think yields go up. I think crypto, sort of TBD.
Keoun:
And so what do you think about Bitcoin? Does that decoupling happen right away or does it happen some other time?
Hayes:
I don't think it happens right away. I think if we get sort of a massive sell off, people sell what they can, not what they want. Bitcoin is a very liquid asset. People have a lot of illiquid assets on their books, especially if you're an investment manager. So if you have some bitcoin, you dump it. If the basis comes down even further than where it is today, sort of that's the difference between Bitcoin and futures contracts. You see large hedge funds like Millennium and these shops who put on this basis trade, starting with the ETF launch earlier this year. They unwind those positions and sell bitcoin spot into very illiquid markets. So I think Bitcoin goes down with the rest of the markets. But quickly, as we sort of see a financial collapse in the early stages, bitcoin will say, ‘OK, I believe that the markets will respond positively to more printed money.’ [Treasury Secretary] Janet Yellen and [Fed Chair] Jay Powell can’t afford a financial collapse a few weeks before the election, especially if they want Harris to beat Donald Trump.
Keoun:
And not to dial it in too much, but bitcoin is currently right around 60 grand. You know, if we get 50, where does Bitcoin go? If we get 25, where does Bitcoin go? Do you have that specific prediction?
Hayes:
I think 25, no, unchanged, not much is going to happen. I think everyone expects 25. I think if they go 50, that will be a nuclear catastrophe for financial markets. One or two trading days after the effect, you'll see a massive rally and everything because everyone believes that the more they cut rates, the better. But I actually think it points to a deeper rot in the global financial system. And that will come through in much more depressed prices after the fact.
Sanasie:
Samson Mow was on Markets Daily recently and predicted that Bitcoin could hit a million dollars in 2025. That video saw a lot of reaction from the CoinDesk audience, a lot of engagement. What do you think of that prediction? Could it hit a million dollars next year?
Hayes:
Sure, but I don't think it will. I still have a million dollar price target. I'm more of a 2026, 2027 sort of person. Next year, we really get a ramp up in fiscal spending regardless of who wins the U.S. election. And if the U.S. dollar declines a lot, then China has room to enact stimulus as well and keep the yuan stable. And then you have the rest of the major central banks following in the footsteps of the Fed. They look at the Fed; they're easing so we can ease too. We can do as much as the Fed is and our exchange rate isn't going to get trashed. And so that's what I think happens once you get the new president, whoever it is in the U.S. because both Harris and Trump are committed to spending lots of money. Trump is committed to cutting taxes and Harris is committed to welfare payments.
Keoun:
Arthur, I was listening to a podcast you were on not too long ago, and you were talking about how you think that this cycle is the one where I think your terminology was the sovereign debt breaks. And, I'm curious, when you talk about a cycle, what is that cycle that we're in right now? How long is that cycle?
Hayes:
I don't know how long the cycle is, really. It depends but I believe that. If you think about the global reserve currency, the U.S. dollar, and all the wars and all the spending that needs to happen to keep the system intact, we're at this precipice where you can go either way. You could have a sort of massive austerity, massive deleveraging, maybe a revolution, or the authorities can try to keep things stable by fixing the price of government bonds and printing as much money as possible to placate their electorate, whether that's in the United States, that's in the EU, that's in China, that's in Japan.
Every single major economic block or country runs a similar sort of fiat-fractional-based financial system, regardless of whether they're democratic, autocratic, communist, capitalist, whatever. Those are all smoke screens. At the end of the day, everybody prints money. Everybody has a fiat fractional banking system. Everybody needs inflation. Everybody needs to take their savers wealth and steal it. So, that the government can afford its spending programs, whether that's to fund wars or that's to do green new deals, or it's to onshore production or it's climate change policies or it's welfare payments to the poor individuals who are losing out in sort of this economic transformation, AI and all this kind of stuff. There's so many reasons why the government needs to spend money and not try to tighten its belt and restore confidence in these fiat currencies that we exist with.
Keoun:
The question is, you know, can they continue to just keep things going?
Hayes:
Sure, and Bitcoin can go to a million, to 10 million. Bitcoin's what, $1.7 trillion market cap. It's magic internet money that was created out of thin air, you know, starting in 2009. Bitcoin is the antidote to what has happened. Yes, okay, they've printed a lot of money globally, the U.S. being the most egregious with it. And, the reaction has been Bitcoin. And we have this cryptocurrency ecosystem that has thrived based on all this printed money. And we have all these different types of assets that are created and have value because we have such a fucked up financial system. So, I say they're getting away with it. Bitcoin's a smoke alarm. It's telling us that there's something wrong here.
Sanasie:
When you look at the crypto markets, when you look at the commentary around crypto markets, I know you create a lot of your own content, you participate in a lot of content like this podcast, what are people not talking about enough?
Hayes:
Patience. I think everyone is thinking, Bitcoin needs to go to a million dollars today, next year, because I took a bunch of leverage or my whole net worth is in this particular cryptocurrency. And they hear the things, the imminent collapse, all the debt. They're asking well, why isn't it happening yet? Why not now? I see all these things. I believe what you're saying. It's super fucked up. Politics is fucked up. Finance is f##ked up. And why isn't Bitcoin responding? Or why isn't the crypto that I own responding? And I think it's just patience, right?
It's been a little over a decade and we've created this entire new financial ecosystem. We have millions of people around the world who have Bitcoin, Ethereum, Solana, whatever wallets. It's a very successful financial experiment to date, but it's not going to just all of a sudden just go to some ridiculous value just because you have a lot of leverage or you bought a lot of it yesterday. So, I think patience is something that people need to understand because if you believe in the math, and the law of compounding interest, then it's inescapable. The system must print money, must debase the currency to attempt to survive, and every other major civilization has done the same thing. And at the end of the day, inflation is hoisted upon the people and some sort of revolution happens. So the history is 100 for 100. Just wait.
Keoun:
Arthur, just to get into one of the specific market factors that have emerged this year, which is all these ETFs. You were actually, you previously traded ETFs at Citigroup. So would love to hear. And again, I was just listening to this other podcast where you were talking about kind of the role of the market makers and that dynamic, but curious, just generally speaking, what is your kind of big take on what are the implications of now ETFs being kind of a major factor in this market?
Hayes:
So I think at the end of the day, ETFs are for people who want the price performance of Bitcoin. They don't want to own Bitcoin. They don't want to be their own financial institution. They want to outsource that to Larry Fink, BlackRock and all these other major institutions, which is fine. Bitcoin can do whatever you want with it.
What does that mean? You're a passive investor and you're not actually using the protocol. So if we take this to the extreme and every single Bitcoin is owned by BlackRock or a similar sort of institution, then the network goes to zero because no one's actually using it. So the reason why Bitcoin has value is because we use it. It's not like gold. I can hold gold in a vault for returning it's still gold, so the chemical property of being gold. If I don't do anything with the bitcoin, then the miners don't get paid and the network dies. And that's a fundamental, very nuanced difference between Bitcoin and gold, which I think is not a problem today. It could be a problem in the future. But at the end of the day, if you're thinking about why now, why did BlackRock get in their ETF approval in six months and the Winkle Clowns couldn't get one in 10 years?
Right? Live in New York. They're both billionaires, both very rich. Why weren't they given one and BlackRock was given one in six months? Well, at the end of the day, you want the same financial institutions to control the wealth that can ultimately be appropriated by the government at the flick of a switch. BlackRock is just another arm of the U.S. government, just the same as any other large Chinese asset managers in the arm of the Chinese government.
Sanasie:
If people don't use Bitcoin, it goes to zero. It doesn't function the way in which everyone who operates in this industry wants it to function. Talk to me about what could happen in the future there. If this happens, comes to fruition, people aren't using Bitcoin, what does that problem look like?
Hayes:
It looks like revenue for miners goes down. It looks like how do they afford the capex? Difficulty adjusts, that kind of thing. I mean, I think it's a very long tail sort of situation if we don't have any use cases for Bitcoin. And obviously that's sort of why I love Ordinals and Bitcoin layer 2D files, these sort of things. Like let's pay the miners, let's do something with this thing and create some usability for people so that...people are using it, people are spending money, and we sort of take this problem and remove it as a problem from the future.
Keoun:
You've done some really interesting things this year at Maelstrom, which is your family office, your investment fund, right? And you launched this Ordinal's Inscription series, the Airheads, which is hilarious, by the way.
Hayes:
Thank you. I guess I'm a flexi -coiner, an avid sh&t-coiner. But if I think about the taxonomy of how I look at crypto, Bitcoin is money. No other crypto is money. It's the hardest money that we've created in human history. Bitcoin cares about the security of the network. Bitcoin cares about an immutable blockchain. Ethereum is not money, regardless of what people say.
They decided not to be money in 2016 when the community allowed a hard fork to happen to pay back the Dow hack folks. Ethereum wants to be the best decentralized computer ever. And it is so far. I put Solana in that camp. Obviously I'm a big Aptos person right now. They're also trying to enter this sphere. And then you have a lot of other applications.
They want to do something on one of these networks, decentralized finance is something I'm very passionate about because I believe that the rest of the world should have access to financial products at the ease of going on the internet and clicking a few buttons, which is not really the case for most people out of the United States and Western Europe. They have pretty fucked up financial systems. That's why DeFi makes sense for those folks. So I like all this stuff. It's all an experiment.
You know, some things are 10 years old, 15 years old Bitcoin, and other things are less than a year old. But we're trying to sort of create a completely new system and give anyone with an internet connection a choice of how they want to save, how they want to invest, how they want to express themselves culturally over the internet.
Keoun:
And for your NFT collection, like why you chose to go in now on Bitcoin, Ordinal's inscriptions, what was that? What was the thinking there? Or what's your goal for that project?
Hayes:
So we're an investor in Oil Wallet and there are...
Keoun:
Yeah, yeah, I met one of their guys, by the way, at Bitcoin Nashville at the party at the Parthenon. was talked with him for a while. But anyway, go ahead.
Hayes:
Yeah. So we're an investor in this wallet and how do we create some buzz about Ordinals? Well, let's do an Ordinals drop. Now I just don't want to do another, you know, PFP 10 ,000 AI generated collection. We've done that to death. So what can we do that is specific to Ordinals that you can't do this on any other protocol? So that was something to do the recursive inscriptions. We want to show artists and creatives, look at what we've done here. I actually don't care what happens to the price of these things. I just want to see people be inspired to do other things, show the capabilities of the oil wallet. Here's what you can do with this and show the capabilities of ordinals. What sort of creative minds can create something completely unique that can only exist on ordinals that further.
Keoun:
Okay, got it. Yeah, that's really funny.
Hayes:
That's really the goal. I mean, of course, I hope that all these airheads are super, super valuable in the future, but really the goal is to inspire others to do other sorts of derivative works using Ordinals and inscriptions.