Bitcoin, ethereum and other major cryptocurrencies BNBBNB and XRPXRP have defied expectations with their 2023 price rally—though one small cryptocurrency has left them in the dust.
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The bitcoin price has added almost 70% since the beginning of the year, boosting ethereum, BNB, XRP and the wider crypto market, even as the Federal Reserve has continued to hike interest rates in its war against soaring inflation and helped by a looming Wall Street crypto earthquake.
Now, with questions suddenly emerging over whether the Federal Reserve will hike or hold at its interest rate decision meeting this week, former BitMex chief executive and legendary crypto trader Arthur Hayes has predicted the bitcoin price could pump if the Fed keeps raising rates.
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“We have been conditioned to believe that when interest rates go up, the price of risky financial assets like bitcoinBTC, stocks, gold, etc. should fall,” Hayes, who’s now a popular macro-analyst, wrote in a blog post.
“But, because the government has continued its spending bonanza and driven GDP sky high, the real yield that folks are earning on seemingly valuable ~5% government bonds may actually be closer to -4%—meaning that risky assets are still a very attractive proposition for investors,” Hayes wrote, calling Q3 GDP growth a “mind-bogglingly massive” 9.4% compared to the two-year U.S. Treasury yield of 5%.
“To sum up: when rates rise, the government increases interest payments to the rich, the rich spend more on services, and GDP pumps even more,” Hayes wrote, adding bondholders may seek yield in more rewarding “risk assets” like bitcoin.
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The Federal Reserve and its chair Jerome Powell, after beginning to hike interest rates in March 2022, are grappling with receding inflation as the economy and labor market remain surprisingly resilient.
When Fed officials announce their decision on Wednesday they may defy market expectations of a “hold” and raise rates again, according to a poll of economists by the Financial Times—which could taken investors off guard.
“Investors have already priced in with certainty that rates remain on hold,” Matteo Greco, research analyst at crypto investor Fineqia International, wrote in an emailed note.
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