While the crypto market remains highly volatile, analysts are split on whether further downside is imminent for Bitcoin or if the bottom is already in.
According to BitMEX founder Arthur Hayes in one of his recent blog called Kite or Board, Bitcoin is likely to trade sideways in the $25,000 range for the start of Q3 2022. He believes the market has yet to realize that the Fed’s tightening is losing its grip, which will necessitate a reversal back to loose monetary policy.
In his view, rapidly declining control of the Treasury market will force the Fed to resume rate cuts and QE sooner than most expect. This policy pivot would provide significant tailwinds for Bitcoin.
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Show more +One of Bitcoin’s value propositions, according to Hayes, is that it serves as an antidote to the broken, corrupt, and parasitic fiat banking system. Therefore, as the traditional banking system continues to falter, Bitcoin’s value proposition becomes even stronger.
Bitcoin also benefits from increased fiat liquidity – rich people don’t need real assets, just financial ones that allow effortless consumption. Since Bitcoin has a finite supply, as the denominator of worthless fiat currency expands, Bitcoin’s value in fiat terms will rise. This explains Bitcoin’s 18% gain since March. As long as the Fed maintains its current policy path, Hayes believes crypto and big tech stocks will keep rising.
In “Kite or Board,” Arthur Hayes delves into the concept of “kiting” in the financial realm, a practice where individuals exploit the float time between a check’s deposit and its clearance to utilize funds not yet available. This can lead to a cascade of financial complications if not carefully managed. Hayes draws a parallel between this and the history of the Eurodollar market, which emerged in the 1950s and 1960s. This market’s inception was a response to the U.S. imposing interest rate ceilings, prompting banks to relocate their operations overseas to sidestep these constraints, resulting in a vast offshore reservoir of U.S. dollars.
Transitioning to contemporary times, Hayes discusses the meteoric rise of stablecoins in the cryptocurrency domain. These stablecoins, such as USDC and USDT, are tethered to the value of conventional currencies and serve as a conduit for transferring value within the crypto ecosystem. However, Hayes expresses apprehension about the potential for “kiting” within the burgeoning stablecoin market.
Given the decentralized essence of blockchain coupled with a lack of stringent regulation, there’s an inherent risk of misuse. Concluding his discourse, Hayes underscores the paramount importance of comprehending the intricate mechanisms underpinning financial systems, be they traditional or rooted in crypto. While he champions innovation, he also cautions readers to remain vigilant of the potential pitfalls and challenges that lie ahead.
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