Arthur Hayes comments on a recent half-percentage-point Fed rate cut and its immediate market effects (weaker USD/JPY, small rise in 10-year Treasury yields, Bitcoin up). He argues the cut is politically motivated to boost markets before US elections and predicts inflationary pressures, yen strength, and rotation out of foreign assets. Hayes also discusses crypto-specific topics: Bitcoin ETFs and basis trades by institutions, the need to support Bitcoin developers and cautious upgrades, competition between bitcoin mining and AI data centers for power, risks of centralized crypto companies, and his own post-Bitmex work at Maelstrom.
Chapters
I think it's calm before the storm. I woke up this morning, I took a look at the announcement, you know half a percent rate cut, I took a look at dollar yen. It was like 142, a little bit weaker I think just before I stepped in here it's almost like 144 so weakening slightly bitcoins up post the announcement. But strangely enough the 10 year treasury yield is actually up 2 or 3 basis points from, from the announcement. So I think that's interesting sort of economy about the market. You would think that yields would come down even further because I think now for the November meeting it's almost like a 70% chance the market believes the Fed's going to cut again. This because for what seems to happen is you get the initial reaction and then the real reaction is going into the close on Friday for traffic markets and then crypto follows up either up or down over the weekend. And so that's when we really see what the market really thinks about what just happened. Obviously I have a macro view that Jay Powell and Janet Yellen want to use financial markets to help Kamala Harris win the election. And obviously this sort of fits within that, that, that thesis because if you look at the US economy it's extremely strong GDP growth for a quarter. There's still unemployment is still quite low on historical standards. And why is the Fed cutting rates? It seems like the current rate regime was perfectly fine with a growing US economy. So what was so bad that they needed to cut a half a percent largest rate cut since March of 2020? I believe that they're trying to get markets to go even higher to make people feel even wealthier as they go into the ballot box in November. And, and inflation is going to accelerate after this point because if people have been saying that the US government has been recklessly spending money, how does making it cheaper for them to borrow help that position? I think that the yen is going to continue to strengthen and if the Fed and the market believes they're going to continue to cut rates and the BoJ has continued to say we are still on a rate rising path so that differential is going to need to be exiting that trade because both sides of the of the pond are telling you on the one hand we're cutting rates in the, on the US dollar side and on the Japanese yen side we're going to raise rates. So it's imprudent for risk management for you to keep that position on. So I believe that slowly then quickly people are going to be selling foreign assets Foreign meaning not assets outside of Japan. And buying back the. I find it quite strange that a lot of people in crypto think that Trump is pro crypto. Trump was president for four years. He had perfectly, you know, a blank slate to do whatever he wanted to do and he did nothing for crypto. A lot of the people who are in these agencies, you know, came in under a Trump administration. So I don't believe anything he says. He's a politician. There's a lot of crypto money that wants to donate to politics. He's. Seen the last four years in terms of the policies that have been put forward. But I think at the end of the day, United States is a very small place in terms of population, obviously has a very large economy and whatnot. But take a look at this conference, right? Last year I think they sold 10,000 tickets. This year they sold 20,000 tickets. So there's a global movement to get financial freedom to divorce money from the state. And if the American regulators want to, Or we don't need regulatory clarity from the United States government, if they provide it, great. If they don't, it's just the same as it's been since 2009. And we've grown from zero to whatever 2 to 3 trillion dollar market cap of a crypto ecosystem. So I think people need to stop worrying about it. If you want to launch a business in the US then obviously you need to worry about those things. But if you're constrained about, what do I do then? Just ignore America? There's a whole wide world out there. Look at this conference. It's absolutely insane. The amount of energy and people from all around the world have come here to sort of build a bright new future. Let America be in the past. So I've been trading crypto for over a decade now. I obviously was running Bitmex for a period of time and we've experienced all sorts of different types of outages. Obviously the biggest one was the March 2020 DDoS attack when the exchange went down. And you know, people thought we saved bitcoin from going to zero or whatn, but again, these things happen, right? There are malicious actors who are looking to take down especially front ends and trick people into sitting their assets where they shouldn't be going. And at the end of the day it's reliant. It's incumbent upon the protocols to make sure the actual base technology is safe. The Athena protocols. We assure people that the actual funds that are staked with the protocol are unaffected. This is purely a front end issue. This is, you know, part and parcel of dealing with electronic things. So quite an interesting phenomena is happening with these Bitcoin ETFs. If you look at, I think it's a 13 filing in the US where large funds have to disclose their holdings on a quarterly basis. You saw the top of the list were institutions like Millennium, large hedge funds, right, who owned all these Bitcoin ETFs. Now a lot of people think, oh wow, Izzy believes that Bitcoin is valuable, but that's not the case. They were putting on basis trade. So these large funds would buy the Bitcoin ETF and sell the CME futures contract and earn a very good return. I don't know whatever the basis was at the time. And so as that basis has come in, as the bitcoin prices fell and gone sideways for the past six months, you started seeing these institutions selling Bitcoin ETFs in the cash market. And that's kind of why you saw sort of net outflows over the past few weeks. So it's going to be interesting to see the next quarter's disclosures on whether those who are at the top are now much lighter positions as they've unwound these trades. So I think we're yet to see sort of like a lot of true long only buying that isn't influenced by sort of interest rate trades that are endogenous to the crypto ecosystem. Once we see that, then I think we're going to see a lot stronger sort of base case for bullishness for Bitcoin ETF asset accumulation. So I mean, Bitcoin is the original OG coin, right? It's why we're all here. It's the hardest money ever known. It's the reserve asset of, of crypto. So I think as bitcoin goes, the ecosystem goes, right? Bitcoin goes to a million dollars and also going to go to some crazy, crazy values. If we don't support the bitcoin network and don't support the folks who are updating Bitcoin core and we allow the state to take down this thing that we've built, then we're all at risk of bad things happening to the ecosystem. So I think it's incumbent upon those who can afford to do so to support developers who are devoting their time and energy to upkeeping the thing that started this whole movement. I think that if Bitcoin wants to be the hardest money ever known, then upgrades have to be slow, right? Because the last thing we want to do is put Something into production that's going to endanger what we've spent the last 15 years building. Nor do I believe that bitcoin needs to stay the same. Right. The whole point is that it changes with the, with how people want it to change, but obviously in a slow and methodical and safe way. I mean, of course disinflationary impacts of the having will be felt when the market's ready for them to be felt. Maybe it's not now, maybe it's in a month or two. I don't know. I think one of the bigger concerns for miners right now is you now have this competition for AI data centers, right? There is this insatiable demand for power and for compute from training large language models, lms. And so now if you're a bitcoin miner and you have access to this power and you have a data center, you could do bitcoin mining, you could do, you know, AI training. Right. And so you kind of. It's going to be interesting to see how that plays out in terms of the economics for large scale bitcoin mining. I mean, it sucked. It wasn't fun. I'm not going. I wish it didn't happen. I think it's part and parcel of running a centralized company in crypto. Right? CZ is facing more serious sort of things and you know, you have Ross serving a life sentence, you have other people who fall afoul of US regulations. So I think if you run a centralized company in crypto, these are the sorts of things that can happen to you. It also shines a light on what decentralization actually means. Like we have a lot of these centralized companies, they're subject to these sorts of risks. If that's something, that's something that you're comfortable with, then you might need to choose a different line of work. So. So, I mean, Bitmex was fun. Obviously I made a lot of money. I'm still on the board, I still own. I haven't sold a single share of what I own in BITMEX. Running a 250 person company, not really my jam. There's a lot of things in HR and being the CEO that I didn't really enjoy. And so having the opportunity to work with a very small group of dedicated financial professionals investing in trading and trying to make money is a lot more enjoyable for me. And so I really love what we're doing at Maelstrom and, and the people that I work with. It's a lot of fun. I love financial markets, I love talking about them. I love writing about them. I love investing in projects. So I'm. I'm having a blast at Maelstrom.
