How Traditional Finance Volatility Cycle Benefits Crypto: Insights from Arthur Hayes
Arthur Hayes, the co-founder of the popular crypto exchange BitMEX, has long been an outspoken advocate for Bitcoin and the role it plays in the global financial system. In a recent essay titled “Volatility Supercycle,” Hayes delves into the relationship between traditional finance (TradFi) and the cryptocurrency market, highlighting how the volatility in traditional financial markets can actually benefit the value of digital assets like Bitcoin.
Hayes argues that Bitcoin serves as a “release valve” for the fiat currency printed by governments around the world to suppress volatility in financial markets to unnaturally low levels. According to him, the constant printing of money by policymakers to create a calm economic surface ultimately triggers volatility in the crypto market, leading to surges in the value of digital assets.
The Suppression of Volatility in Traditional Finance
Hayes asserts that traditional finance systems, particularly in the United States, are overleveraged and unable to handle any form of volatility. He criticizes the Federal Reserve for its tendency to print more money whenever there is a crisis, rather than addressing the underlying issues causing the volatility. This approach, he argues, only serves to delay the inevitable reset of the financial system.
Drawing an analogy to holding an inflated ball underwater, Hayes explains that the amount of money needed to maintain the volatility status quo in traditional finance increases exponentially each year. He predicts that the total amount of money to be printed in the coming years will far surpass the cumulative amount printed since 1971.
According to Hayes, the distortions of volatility in traditional finance are most extreme in the United States, where the bond market serves as the backbone of the global reserve currency, the US dollar. Other nations also focus on controlling the volatility of their domestic currencies against the USD, as it impacts their ability to engage in international trade.
The Positive Effects on Bitcoin
Since the 2008 financial crisis, banks have maintained high levels of unused credit, which cannot be removed without risking a collapse of the financial system. Hayes explains that banks are compelled to create even more credit to suppress volatility, leading to a continuous cycle of fiat currency injection into the financial system.
Following the Federal Reserve’s recent rate cut, US banks are expected to issue even more credit, further increasing the amount of fiat currency in circulation. Hayes predicts that this excess liquidity will flow into the crypto market, driving up the value of digital assets like Bitcoin in the coming months.
Hayes emphasizes that investors should prioritize acquiring Bitcoin at the lowest cost possible, as the volatility of Bitcoin against fiat currencies presents an opportunity for growth. He believes that Bitcoin’s value will continue to rise as traditional finance struggles to contain volatility.
In conclusion, Arthur Hayes’ insights shed light on the complex interplay between traditional finance and the crypto market, highlighting how the volatility cycle in traditional finance can benefit digital assets like Bitcoin. As governments continue to print fiat currency to suppress volatility, the value of Bitcoin and other cryptocurrencies may see significant gains in the future.
