Arthur Hayes, the former CEO of the BitMEX exchange, has forecasted a “global financial meltdown” due to impending economic troubles in the United States in his most recent blog post, published on January 19. According to Arthur Hayes, the current rally in Bitcoin should not be interpreted as the commencement of a new bull run.
Arthur Hayes 2023 market outlook
At first sight, Arthur Hayes mentions the US Bureau of Labor Statistics (flawed and misleading) Consumer Price Index (CPI) series. Many market analysts believe that the CPI’s recent consistent downward trend can only signify one thing: Sir Powell is getting ready to reopen the free money taps and make it rain like it’s March 2020.
However, Arthur does not appear to believe what many market analysts believe. A market rise begs the question of how Bitcoin will react. To effectively predict that, we must consider two essential Bitcoin facts.
The first is that Bitcoin and the larger crypto capital markets are the only markets that are truly free of central bankers and huge global financial institutions’ manipulation. The second thing to understand about Bitcoin is that, as a reaction to the world’s global fiat monetary system’s profligacy, its price is significantly dependent on the future course of USD worldwide liquidity (owing to the USD’s function as the global reserve currency).
To that end, Bitcoin has outperformed a flattened USD Liquidity Index value over the last two months. According to Arthur Hayes, this suggests that the market believes the Fed’s pivot is imminent.
BTC and the crypto market performance in 2023
According to Arthur Hayes, Bitcoin is simply bouncing off the local lows of under $16,000. He believes Bitcoin will then reach a new plateau and trend sideways until USD liquidity constraints improve.
However, there is a second market outlook: Bitcoin is rebounding as the market anticipates a restart of Fed USD money printing. If this is the case, Arthur envisions two probable outcomes:
One is that if the Fed does not proceed with a pivot, or if many Fed governors play down any prospect of a pivot even after “good” CPI numbers, Bitcoin would likely go back to previous lows.
Second, if the Fed does make a pivot, Bitcoin’s good performance will continue, and this surge will mark the start of a secular bull market. However, if both eventualities come out, investors should buy cryptocurrency.
The United States job market influence
According to reports, wages in the United States are rising at the same rate as inflation. That is, while things are becoming more expensive, people’s ability to purchase those goods is increasing at a similar rate due to higher wages.
As a result, there is a risk that people’s increased purchasing power will fuel more goods inflation. To put it another way, goods manufacturers might understand that their buyers are making more money today than they were previously and raise their prices even higher to collect more of their clients’ recent pay gains.
According to Arthur Hayes, under that scenario, Jerome Powell will have some excuse to keep raising interest rates.
The involvement of the US Treasury
Core PCE in December 2022 was 4.7% higher year on year. T-bills are currently earning more than 4.7% after 6 months. As a result, Sir Powell has plenty of leeway to keep hiking interest rates. More crucially, Powell will be free to continue shrinking the Fed’s balance sheet, tightening monetary conditions to where he wants them to be.
The drop in the CPI could indicate something. However, Arthur Hayes believes it makes no difference in terms of anticipating the date of the final Fed turn.
However, Arthur Hayes argues that ignoring the CPI figure and continuing to decrease the Fed balance sheet through QT will result in a credit market disruption event that will produce an “oh shit!” moment for the Fed and force them to reverse direction aggressively.
If a removal of half a trillion dollars in 2022 created the worst bond and stock performance in a few hundred years, imagine what will happen if double that amount is removed in 2023. The reaction of the markets when money is injected vs. withdrawn is not symmetrical — and as such, I expect that the law of unintended consequences will bite the Fed in the ass as it continues to withdraw liquidity.
The present Fed rate hikes scenarios create a price crater for risky assets. According to Arthur Hayes, 2023 could be just as bad as 2022 until the Fed pivots.
Gold performance in 2023
At first sight, you could easily conclude that gold’s recent surge reflects the market’s view that the Fed will reverse course in the near future. It’s a reasonable conclusion. However, Arthur believes that gold is rallying for a completely other reason. As a result, it is critical not to mistake gold and Bitcoin surging as confirmation of an approaching Fed turn.
According to Arthur Hayes and other commentators, the world’s de-dollarization will speed up in the next years as a result of a few significant recent geopolitical developments, such as the United States freeze of Russia’s “assets” in the Western banking system.
Arthur believes that sooner or later, the rest of the world will learn that investing in US Treasury bonds makes no sense when they could meet the same fate as Russia. That leaves gold as the most obvious and appealing investment option.
The excellent chart above from Gavekal Research clearly illustrates that gold is a better energy store than US Treasuries. When they do decide to pivot, the Fed will plainly express their intention to abandon tight monetary policy.
The Fed announced in late 2021 that it would switch to fighting inflation by limiting the money supply and boosting interest rates. They started doing so in March 2022, and anyone who didn’t believe them was slain. As a result, the same thing is likely to happen in the opposite direction: the Fed will tell us when it’s finished, and if you don’t believe them, you’ll miss out on the big surge that follows.