Crypto Expert Explains Why Interest Rate Cuts Could Cause BTC Price Drop

The co-founder of BitMEX, Arthur Hayes, has offered a perspective on Bitcoin’s price trajectory that contrasts with the prevailing optimism surrounding expected interest rate cuts by three of the world’s strongest currencies. Hayes shared his insights in response to the Federal Reserve’s recent announcement of an interest rate cut.

While many expect these cuts to trigger a bullish run for Bitcoin, Hayes argues that the reality may be more complex. He explains that a rate cut in the US Dollar, British Pound, and Euro could narrow the interest rate gap between these currencies and the Japanese yen.

Hayes likened the immediate positive market response to the rate cut announcement to a “sugar high,” suggesting that lowering the cost of borrowing is a temporary measure as the Federal Reserve tries to balance rising inflation against the risk of economic recession.

Hayes pointed to the BTC surge between early 2020 and early 2021, driven by low interest rates that encouraged investors to borrow money to invest in high-risk assets like cryptocurrencies and stocks. However, he also warned that a reduction in interest rates could have the opposite effect on yen carry traders, potentially leading to a dip in BTC value.

Carry trading involves borrowing in currencies with lower interest rates and investing in assets denominated in currencies with higher rates. A decrease in the interest rate differential between the USD, GBP, EUR, and the yen could deter carry traders.

Hayes referenced the market’s reaction when the Bank of Japan raised interest rates to 0.25%, causing BTC prices to briefly dip below $50,000 as a potential example of what might occur if the market reacts similarly to the upcoming rate cuts.

While both outcomes are possible, Hayes suggests that interest rate cuts are only temporary fixes. He advocates for more substantial economic measures, such as injecting additional fiat money into the system.