Arthur Hayes says as long as fiat exists, your crypto investments are safe

Arthur Hayes, founder of BitMEX and Maelstrom, believes your crypto investments are safe as long as fiat money keeps flowing.

The logic is simple. More printed money means more people turning to crypto as a literal release valve for all that fiat.

Hayes’ predictions don’t matter

Arthur Hayes is known for his market predictions. But not all of them have hit the mark, making him decide that they don’t even matter.

In November 2023, he predicted that Treasury Secretary Janet Yellen would increase the supply of Treasury bills to drain funds from the Federal Reserve’s Reverse Repo Program. 

He was right. The RRP balance dropped by 59%, Bitcoin surged by 77%, and the S&P 500 rose by 21%. One point for Hayes.

By March 2024, Hayes predicted that the Bank Term Funding Program wouldn’t be renewed. He got that one wrong, losing money on some Bitcoin puts. The market didn’t react as he expected. 

In April, he warned that tax season would pull liquidity from the system and crypto prices would dip. Bitcoin dropped 9%, the S&P 500 fell 1%, and gold fell 3%. He got it right again.

Then came summer, and he thought Bitcoin would hover between $60,000 and $70,000. It dipped to $54,000. He added some altcoins to his portfolio, which didn’t perform as well as he’d hoped. 

By June and July, when Japan’s fifth-largest bank admitted to losses on foreign bonds, Hayes made a wrong call on the BOJ’s response. They raised rates, something he didn’t expect.

August wasn’t much better. He anticipated a net issuance of Treasury bills would inject liquidity, but after Powell hinted at a rate cut, the opposite happened. 

Treasury bill yields dropped, and the RRP balance went up. Hayes didn’t see that coming.

In September, he predicted a negative reaction to a Fed rate cut due to a narrowing dollar-yen interest rate differential. Instead, the yen weakened, and risk markets performed well. That’s another loss for Hayes. His batting average for predictions stands at 2 wins and 6 losses. 

Not exactly a great record, but he’s still making money. Why? Because the overall trend favors crypto as long as fiat keeps flowing.

The fiat money machine

Since 1971, when the U.S. dropped the gold standard, central banks have been on a printing spree to maintain economic stability. Every time there’s a crisis, the solution is to print more money.

This suppresses volatility, but it also means the system is on borrowed time. The deeper they push the ball underwater, the more energy it takes to keep it there.

And when they can’t hold it down anymore, it’ll shoot up violently.

The MOVE Index, which tracks bond market volatility, shows how fragile things are. Every time the Fed tries to raise rates, volatility spikes, and they have to backtrack.

In 2000, they popped the dot-com bubble. In 2008, it was the subprime mortgage crisis. Then came COVID, which led to unprecedented levels of money printing.

Now we’re in another easing cycle, with bond market volatility at nearly double the “normal” levels seen between 2008 and 2020.

Hayes believes we’re on the edge of a massive reset. The amount of money printed from now until that reset will be more than all the money printed since 1971. 

The system is so overleveraged that the only thing holding it together is more money.

Bitcoin as the safety valve

Bitcoin, according to Hayes, is the answer to this madness. As fiat becomes more and more worthless, Bitcoin’s value goes up. It’s the most technically sound way to escape the fiat trap.

Hayes says, “For every action, there is a reaction.” The reaction to endless money printing is people fleeing to Bitcoin.

Hayes advises everyone to get their hands on Bitcoin in any way possible. Whether it’s pricing your work in Bitcoin, mining it, or just buying it with your fiat, the goal is to get as much as you can. 

Don’t get fancy with leverage, he says. Just buy and hold. Even if you don’t get every call right, as long as your portfolio is in crypto, you’ll win in the long run.

He does warn of risks, though. Speculating on short-term movements can get you wrecked. Just ask Su Zhu and Kyle Davies of Three Arrows Capital.

They thought they could ride it out with leverage and ended up bankrupt. Hayes’ advice? Don’t misuse fiat leverage.

The real risk comes when the elites can’t suppress volatility anymore, and the system resets. When that happens, everything will fall. 

But Bitcoin will fall less, and that’s where you want to be.