Despite economic uncertainties, Bitcoin stands as a beacon, poised for an unprecedented upsurge, predicts a prominent crypto industry veteran.
Arthur Hayes, the co-founder of BitMEX, in a blog post on May 9, 2023, offered a comprehensive analysis of the current state of the banking system and its potential implications for Bitcoin and other assets. His predictions revolve around the future of non-“Too Big to Fail” (TBTF) banks and the potential for a significant expansion of the US money supply.
Hayes began by criticizing the two-tier banking system established after the 2008 Global Financial Crisis, which designates eight banks as TBTF, guaranteeing their deposits and safeguarding them from bankruptcy. In return, these banks must follow stricter regulations. However, Hayes notes these banks have used political donations to make these regulations as advantageous as possible. He warns that if non-TBTF banks falter, the money supply could expand significantly.
Hayes explained that the preferred method of the Federal Reserve, the US Treasury, and banking regulators is to have TBTF banks take over the liabilities of failing non-TBTF banks. This would essentially expand the money supply by the total amount of loans of non-TBTF banks, estimated at $7.75 trillion. He also discussed the potential scenarios that could prevent non-TBTF banks from going bankrupt, including The Fed cutting rates or the eligible collateral for the BTFP being expanded to any loan on a US bank’s balance sheet.
According to Hayes, either of these scenarios would be beneficial for Bitcoin. If financial conditions are loosened (Option 1), risk assets like Bitcoin, gold, and real estate would likely increase in value due to the decreased price of money. If the amount of money that could be printed is increased (Option 2), assets outside the banking system, such as Bitcoin and gold, would also rise in value.
Hayes also addressed the scenario where inflation persists and the Fed continues to raise rates, leading to the bankruptcy of non-TBTF banks. Their loans would still be guaranteed by the government, leading to an increase in the money supply, which would again boost Bitcoin and gold. However, he strongly doubts that the USG would let the banking system fail.
The BitMEX co-founder emphasized the global implications of these issues due to the USD’s reserve currency status and the holdings of USD-denominated assets by many non-US institutions. He predicts that the USD will continue to depreciate against hard assets like Bitcoin and gold.
In conclusion, Hayes believes that regardless of the scenario – high inflation with rising rates, falling inflation with rate cuts, or continued bankruptcy of non-TBTF banks – Bitcoin and gold are poised for gains. He encourages individuals to invest in Bitcoin, arguing that it’s a win-win situation unless one believes that the political elite will allow a complete failure of the banking system. With his statement “Get your Bitcoin, and get out!” Hayes clearly signals his belief in the asset’s future.
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