Bitcoin ($BTC) Price May Fly If Central Banks Maintain Their Interest Rate Hikes, Says BitMEX Co-Founder


The prominent cryptocurrency exchange BitMEX’s co-founder recently speculated that if central banks persist on hiking interest rates, the price of Bitcoin ($BTC), the flagship cryptocurrency, might skyrocket.

Recently, Hayes released a blog post in which he argued against the widespread notion that Bitcoin’s price performance is correlated with interest rates, claiming that central banks and governments are in a dangerous position because they adhere to obsolete economic models in an attempt to “combat the novel situations of the present.”

Yields on Treasurys have risen from historically low values to 5.5% for the 6-month notes and 4.25% for the 10-year notes as the Federal Reserve and other central banks around the world have aggressively hiked interest rates in an effort to contain spiraling inflation to the target 2%.

Hayes expressed doubts in the essay about the strategy’s long-term feasibility, indicating that high inflation may endure. This viewpoint is based on the discrepancy between the relatively low 5% 2-year US Treasury yield and the Atlanta Fed’s GDPNow prediction of nominal GDP growth of 9.4%.

This is the opinion of Hayes: According to standard economic theory, if the Fed were to raise interest rates, the economy would slow because of the increased cost of borrowing money. Nominal GDP growth should be slowing and real rates should be increasing under these circumstances, logic dictates. But that is not what is transpiring.

Hayes said that the ballooning deficits were caused by the decline in capital gains tax collections as a result of the decline in the value of financial assets like Bitcoin and shares.

He continued by saying that the government would have to issue additional bonds to make up the difference, which would result in higher interest payments to bondholders, especially in a rising-rate scenario.

Hayes speculates that bondholders may abandon government debt in favor of Bitcoin and other “risk assets” if the economy continues to grow at a rate faster than interest payments.

According to the conversion narrative, Bitcoin and other risk assets may gain from lower interest rates because more people will be able to afford to speculate with their money. Hayes said that lower interest rates had been good for Bitcoin’s price in the past, and he called the link between Bitcoin and the actions of central banks a “positive conex relationship.”

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