BitMEX Founder: Bitcoin Surge Is Not Due to Spot ETF, But Related to U.S. Bonds

BitMEX founder Arthur Hayes, with his vast political and economic knowledge, has penned a fantasy analysis piece on the rise and future direction of Bitcoin. He believes that Bitcoin's surge is not due to the anticipation of the approval of a spot ETF, but rather is related to the precarious situation of the American empire.

The article mentions the potential fiscal consequences of the various wars in which the U.S. is involved. Hayes suggests that while the U.S. economy may not go bankrupt, the cost of debt may become unsustainable. This could lead to increased money printing, favoring fixed supply assets such as gold and cryptocurrencies.

Bitcoin Surge Not Due to Spot ETF

Arthur Hayes believes that Bitcoin's surge above $30,000 was initially attributed to false news from Cointelegraph, but it quickly retraced to the $27,000 level. In fact, the subsequent surge in Bitcoin was a rebound following the significant sell-off of long-term U.S. Treasury bonds after President Biden's speech, rather than due to a Bitcoin spot ETF.

Hayes anticipates that the U.S. bond market will collapse after interest rates rise too high, leading to a fervent development in Bitcoin and the cryptocurrency market. People are expected to shift from the U.S. bond market to cryptocurrencies. He believes that initially it will be Bitcoin, followed by Ethereum, and then the altcoins will heat up.

BitMEX Founder's Observations on the Bond Market

Arthur Hayes presents various risks in the bond market that he believes will drive people to cryptocurrencies:

• Interest rate risk: He explains the risk of banks offering 30-year fixed-rate loans. Unlike Taiwan, where loan interest rates adjust with the central bank's benchmark rate, in the U.S., the rate is fixed at the time of contract, making it difficult for banks to predict long-term rate changes. With the recent aggressive rate hikes in the U.S., influenced by the Federal Reserve's rate hikes affecting short-term deposit rates, banks may incur losses. For example, if a bank offers a mortgage at a 3% fixed rate but deposit rates rise to 6%, the bank will lose money as it receives 3% from the mortgage borrower but must pay 6% to depositors. In this scenario, the bank may sell some government bonds to hedge its losses.
• Prepayment/Duration risk: Borrowers can choose to repay early, and changes in the yield curve can introduce duration risk for banks. In a rising rate environment, while borrowers may be less likely to prepay, defaults may occur due to the inability to pay interest. If banks hedge original mortgage loans by shorting bonds, this may expose them to risks.
• Bear steepener: He mentions the concept of a "bear steepener," where long-term rates rise faster than short-term rates, causing the yield curve to steepen. The article notes that bear steepeners have been rare in the past, leading banks and other financial intermediaries to improperly hedge against rates. As rates rise in a bear steepener fashion, the duration of bonds held on banks' balance sheets also extends, resulting in "negative convexity." This means that as rates rise, bond values will exponentially decline.

In addition, there are many other factors he believes are unfavorable to government bonds and the financial market, prompting a shift in investments.