On Thursday (March 12), Arthur Hayes, Co-Founder and CEO of crypto derivatives exchange BitMEX explained actions by the world’s central banks, in the wake of the COVID-19 pandemic, could propel the Bitcoin price to $20,000 by the end of 2020.
In the “From The Desk Of Arthur Hayes” column in the 12 March 2020 issue of the “BitMEX Crypto Trader Digest”, Hayes tries to describe his “current state of mind” as a trader.
More specifically, he talks about why believes “the high priests of finance” will try to “stimulate the economy in the face of a global twin demand and supply shock”, why these actions were likely to fail, how he expects Bitcoin to perform over the coming months, and when you should “back up the truck” and “begin buying crypto with both hands.”
The U.S. central bank, the Federal Reserve (aka “the Fed”), is due to meet on March 18.
Hayes says:
“They are almost out of bullets. They only have 100bps of room left before rates hit zero. They can obviously take rates negative, but as we have seen with various other central banks it is not very effective…
“If a twin demand and supply shock affects the global economy, then rate cuts can do nothing to staunch an economic bloodletting. Once they are done, rates will go to zero everywhere.”
He expects these rate cuts to be “very bullish” for traditional safe haven assets such as gold and “sovereign credit” (such as U.S. Treasuries), but he also believes that the additional liquidity could increase the price of Bitcoin:
“I believe it will perform well with more liquidity sloshing around the system, but that needs to be proven.”
However, Hayes feels that the “real inflation” will “only begin once governing bodies get religious about fiscal policy, and the only two governments that matter in this situation are China and the US.”
This is what he thinks will happen in China as far as Bitcoin is concerned:
“… I expect the OTC trading platforms to receive large inflows of RMB seeking a home in the large cap magic internet money manifestations.”
And in the U.S., he thinks that President Trump will “launch some sort of fiscal bazooka in an attempt to keep the SPX at all time highs.”
Hayes feels that COVID-19 will cause consumer spending to go down, which could hurt the economy. To encourage consumers to spend more, he says that central banks will need to “monetise government debt,” which will lead to inflation, and eventually by what he calls the “Debt Jubliee”:
“This Debt Jubilee is an admission of failure by governments and central banks and it takes many forms, like the rebasing of global currencies with hard money, such as Gold, or the cancellation of the previous regime’s debts by a new administration.
“Credit claims that cannot be repaid due to insufficient growth and productivity will be extinguished in some chaotic fashion. This isn’t something that will happen this year, it will play out over the next decade.”
Hayes says that this has already started to happen in Italy, where “mortgage payments are on hold.”
As for Bitcoin, Hayes thinks that the “fear and uncertainty facing humanity is enough to inspire a global margin call” and that this could push the price of Bitcoin even lower than it is today:
“While I don’t believe we will revisit $3,000, max pain probably resides somewhere between $6,000 to $7,000 Bitcoin.
“Any crypto hedge fund that allows quarterly or less liquidity will be getting distress calls.
“They will be dumping coins into a falling market. That will push the price lower on the margin.”
Once central banks have cut rates to zero and started “open ended quantitative easing”, he expects Bitcoin to “enjoy a nice run back through $10,000 towards $20,000 by year end.”
Finally, the BitMEX CEO talks about when you should start buying crypto again:
“The time to back up the truck is when the futures basis goes flat or negative. That will signal an evaporation of optimism.
“Then you must surf the tidal wave of free money, and begin buying crypto with both hands.”