Arthur Hayes predicts Bitcoin’s decline indicates an impending AI crisis, yet anticipates a significant Federal Reserve response will lead to new record highs.

The emergence of artificial intelligence is expected to displace millions of employees swiftly, resulting in significant credit defaults, according to Hayes.

Fed’s money printer will soon go ‘brrr’, states Arthur Hayes (Shutterstock)

What to know:

• Bitcoin’s recent downturn indicates an impending substantial AI-related credit event, according to Arthur Hayes.
• The Federal Reserve’s reaction to the forthcoming financial upheaval is likely to reignite the crypto bull market.
• However, this does not imply that bitcoin investors will not face additional challenges, as political discord may postpone central bank interventions.

In this article

BTCBTC$68,168.18◢0.05%

BitMEX co-founder Arthur Hayes indicates that bitcoin’s BTC$68,168.18 recent 52% drop from its peak in October serves as a significant warning signal — yet the cryptocurrency may ultimately achieve new highs once the Federal Reserve reacts to an AI-induced banking crisis he foresees as imminent.

In his recent essay titled "This Is Fine," Hayes contends that bitcoin’s divergence from conventional tech stocks underscores its function as the "global fiat liquidity fire alarm." While the Nasdaq has remained largely unchanged, bitcoin has fallen from $126,000 to its current $67,000, reflecting what Hayes characterizes as a substantial credit destruction event that equity markets have yet to recognize.

STORY CONTINUES BELOWDon’t miss another story.Subscribe to the Crypto Daybook Americas Newsletter today. See all newslettersSign me upBy signing up, you will receive emails about CoinDesk products and you agree to our terms & conditions and privacy policy.

"Bitcoin is the most reactive freely traded asset to the fiat credit supply," Hayes stated. "The recent divergence between bitcoin and the Nasdaq indicates that a significant credit destruction event is approaching."

Hayes envisions a scenario wherein artificial intelligence displaces merely 20% of America’s 72.1 million knowledge workers, resulting in roughly $557 billion in consumer credit and mortgage defaults — about half as severe as the 2008 financial crisis. This AI-driven shock would severely impact regional banks and compel the Federal Reserve to undertake "the largest money printing in history," he anticipates.

"Deflation is detrimental, but ultimately advantageous for fiat credit-sensitive assets like Bitcoin," noted Hayes. "Initially, the market assesses the impact … Then … the monetary authorities panic and press that Brrrr button harder than I shred pow the morning after a one-meter dump."

Hayes highlighted gold’s recent increases, especially in relation to bitcoin, as another warning sign, asserting that "a rising gold versus a declining Bitcoin clearly indicates that a deflationary risk-off credit event within Pax Americana is on the horizon."

He expressed that once the Federal Reserve intervenes with emergency liquidity measures — akin to the March 2023 response to regional bank failures — bitcoin will "pump decisively off its lows" and the anticipation of ongoing money printing will propel it to new all-time highs.

However, this does not imply that additional challenges won’t arise in the near term, cautioned Hayes. He indicated that bitcoin could decline further before the Federal Reserve takes action, possibly falling below $60,000 as political dysfunction delays the central bank’s response. He advised crypto investors to maintain liquidity, avoid leverage, and "wait for the all-clear from the Fed that it’s time to exchange fiat for risky assets without hesitation."