Arthur Hayes argues Bitcoin needs more than rate cuts to rebound

Arthur Hayes, founder of BitMEX, has stated that interest rate cuts alone will not be sufficient to boost Bitcoin (CRYPTO:BTC) back to higher levels as it continues to struggle below the $60,000 mark. 

Hayes highlights that macroeconomic factors, especially related to the yen, are playing a critical role in the cryptocurrency market's dynamics. 

While many believe that rate cuts from central banks like the US Federal Reserve, the Bank of England (BOE), or the European Central Bank (ECB) could lead to an increase in Bitcoin’s value, Hayes challenges this assumption. 

He suggests that while lower interest rates generally benefit risk-on assets, they may not have the desired impact on Bitcoin. 

Instead, rate cuts could reduce the interest rate differential between the US dollar, British pound, euro, and Japanese yen, limiting any significant upward movement for Bitcoin. 

Hayes expressed concern about the potential impact of a strengthening yen, which could lead traders to unwind their dollar-yen carry trade positions. 

“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,” he wrote. 

A carry trade involves borrowing in a low-interest currency, like the yen, to invest in higher-yielding assets, and any major yen appreciation could force a reversal of these trades, destabilising markets. 

He argues that central banks must consider more aggressive measures, such as expanding their balance sheets, to counteract the risks associated with a strong yen. 

“We have a battle between the positive vs. the negative forces,” Hayes noted. 

He believes the adverse effects of a rapid yen carry trade unwind could overshadow any benefits from minor rate cuts by the Fed, BOE, or ECB. 

Hayes’ comments come after US Federal Reserve Chair Jerome Powell hinted at a possible rate cut during his speech at the Jackson Hole symposium, suggesting that inflation is trending toward a sustainable 2%. 

However, Hayes insists that without broader measures like increasing the money supply through balance sheet expansion, financial markets, including Bitcoin, may continue to face challenges. 

Despite Powell's hint leading to a brief rally in Bitcoin's price to $65,000, Hayes argues that the broader macroeconomic environment still requires significant easing for a sustained bullish run. 

Market observers, like Alvin Kan, COO of Bitget Wallet, echo similar views, noting that a substantial Bitcoin breakout would likely require a combination of rate cuts and recovering market activity. 

At the time of reporting, the Bitcoin price was $59,218.10.