In a recent blog post, Arthur Hayes, co-founder of BitMEX, shared his perspective on the Federal Reserve’s ongoing battle against inflation. According to Hayes, the Fed’s efforts to control inflation will ultimately lead to increased value for “risk assets of finite supply,” with Bitcoin taking the spotlight.
Hayes compared the continuous printing of money by the Fed to “fiat toilet paper,” suggesting that as traditional currency loses value due to inflation, assets with limited supply like Bitcoin are poised to gain.
Hayes explained that the Federal Reserve’s strategy involves withdrawing money from one sector of the economy while injecting funds into another. However, he labeled this approach as “quixotic” in nature, indicating that it may not effectively address the inflation issue in the long term. As a result, he anticipated that Bitcoin’s value would surge over time due to its fixed supply.
The concept of Bitcoin’s limited supply has been a subject of debate, with even prominent figures like JP Morgan CEO Jamie Dimon expressing skepticism. Dimon questioned the notion that Bitcoin’s total supply is capped at 21 million coins.
In a discussion with CNBC’s Squawk Box, he humorously remarked, “Maybe it’s gonna get to 21 million and Satoshi’s picture is gonna come up and laugh at you all.” This skepticism isn’t new for Dimon, who has previously challenged the significance of Bitcoin’s supply limit.
Hayes also highlighted the Federal Reserve’s monetary policies, specifically focusing on the Reverse Repo Program (RRP) and Interest on Reserve Balances (IORB). He pointed out that the central bank’s continuous increase in these rates results in higher monthly payouts to depositors. This counteracts the Fed’s efforts to manage the money supply through quantitative tightening (QT), which involves selling bonds on the open market.
In Hayes’ view, if the Federal Reserve believes that combating inflation necessitates both raising interest rates and reducing its balance sheet size, it could be a self-defeating strategy. He likened this approach to “cutting its nose to spite its face,” indicating that such actions could have unintended consequences.
Hayes drew a comparison between the current Fed approach and the monetary policy employed by former central bank chairman Paul Volcker during the 1980s. Volcker is credited with effectively curbing inflation during that period. Hayes noted that while the Fed did adjust its policy rate in the 1980s, it did not micromanage rates like RRP and IORB to match it. The primary variable that changed from the Fed’s perspective was the size of its balance sheet.
In conclusion, Arthur Hayes predicts that Bitcoin, with its finite supply, stands to benefit from the Federal Reserve’s ongoing struggle against inflation. As traditional fiat currency potentially loses value, assets like Bitcoin could become more attractive to investors seeking stability and growth.