Why Rate Cuts Can’t Guarantee Bitcoin Revival

BitMex founder Arthur Hayes says rate cuts are not enough to help Bitcoin (BTC) regain its footing as the pioneer cryptocurrency struggles below the psychological level of $60,000.

The influence of US macroeconomics on Bitcoin has resurfaced, with crypto responding to developments from policymakers.

Bitcoin Would Need More Than Just Rate Cuts

Arthur Hayes challenges the belief that rate cuts alone — whether from the US Federal Reserve, the Bank of England (BOE), or the European Central Bank (ECB) — would drive Bitcoin’s price upward. He questions the assumption that lower interest rates automatically lead to higher value for riskier assets.

While Hayes acknowledges that rate cuts often negatively correlate with the value of risk-on assets, he argues that such cuts would primarily reduce the interest rate differential between currencies like the USD, GBP, EUR, and the Japanese yen, rather than significantly boosting Bitcoin’s value.

“The danger of the yen carry trade unwind will reappear and could derail the party unless “real food” in the form of central bank balance sheet expansion, aka money printing, raises the quantity of money,” Hayes wrote.  

Carry trading occurs when traders short futures while simultaneously buying the underlying asset. They aim to profit from price differences between the spot and futures markets.

Read more: How to Protect Yourself From Inflation Using Cryptocurrency

Hayes suggests that if the yen strengthens, it could prompt traders to unwind their dollar-yen carry trade positions. He argues that while rate cuts might temporarily stabilize markets, they could also speed up the narrowing of the interest rate differential between the dollar and yen. This would, in turn, strengthen the yen further and lead to more unwinding of carry trade positions​.

“We have a battle between the positive vs. the negative forces. Given that the amount of global financial assets financed in yen is in the tens of trillions of dollars, I believe the negative market reaction of a rapid yen carry trade unwind due to a quickly strengthening yen will overwhelm any benefit to be had from minor USD, GBP, or EUR rate cuts. I believe that the witches and warlocks heading the Fed, BOE, and ECB recognize that they must be willing to ease and expand their balance sheets to counter the adverse effects of a strengthening yen,” the blog post read.

Hayes argues that to effectively stop the financial market’s struggles, more printed money and an expanding Fed balance sheet are needed. His comments came after Jerome Powell’s speech at the Jackson Hole symposium, where Powell hinted at a possible interest rate cut in September. The Fed Chair noted increased confidence that inflation is on a sustainable path to 2%.

As BeInCrypto reported, As BeInCrypto reported, experts attribute Powell’s speech as the catalyst for Bitcoin’s recent rally to $65,000. CoinShares noted that his remarks spurred capital inflows into digital assets.

The growing market capitalization of stablecoins has also been credited for Bitcoin’s surge. Matrixport highlighted an increase in stablecoin printing over the past weeks, suggesting that new money is entering the crypto market.

However, Alvin Kan, COO of Bitget Wallet, mentioned that the current economic environment still features high interest rates. He believes a major Bitcoin breakout will only occur when the Fed starts cutting rates and market activity fully recovers.

Read more: Bitcoin (BTC) Price Prediction 2024/2025/2030

BeInCrypto data shows Bitcoin is trading for $59,780 at press time, down 0.37% since Thursday’s session opened.