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Hayes, the co-founder of the well-known cryptocurrency exchange BitMEX, has recently put forth a daring proposition. He contends that Bitcoin’s price could surge if central banks continue to raise interest rates. This viewpoint contradicts the commonly held belief that Bitcoin’s worth is closely linked to interest rates. Hayes asserts that central banks and governments are on precarious ground, relying heavily on antiquated economic models to address the distinct challenges of today.
To keep inflation around the target of 2%, central banks worldwide, including the Federal Reserve, have been aggressively hiking interest rates. As a result, the U.S. Central Bank’s benchmark rate has escalated from 0.25% to 5.25%. This adjustment has also influenced Treasury yields. For example, 6-month notes yield 5.5%, while 10-year notes provide 4.25%.
Hayes voiced doubts about the viability of this approach by central banks. He posits that inflation may only decrease temporarily. Notably, the Atlanta Fed’s GDPNow forecast projects nominal GDP growth of 9.4%. This sharply contrasts with the modest 5% yield on 2-year US Treasuries. Hayes commented, “Traditional economics suggests a slowdown in growth in a credit-sensitive economy as the Fed raises rates. However, this is not the case currently.”
Financial assets, including Bitcoin and stocks, have experienced significant declines. This downturn has negatively impacted the government’s revenues from capital gains taxes. Hayes highlighted that this situation further aggravates the government’s deficits. Furthermore, he noted that the government may need to issue additional bonds to cover this financial gap, leading to increased interest payments to bondholders, particularly in an environment of rising rates.
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Hayes speculates that bondholders might redirect their investments if the economy continues to expand, moving beyond government debt obligations. They may gravitate towards “risk assets” like Bitcoin for enhanced returns. Historically, Bitcoin’s price has thrived when interest rates are lower. Hayes acknowledges this and characterizes Bitcoin’s connection with central bank policies as a “positive conex relationship.”
Additionally, Yoni Assia, CEO of the worldwide investment platform eToro, maintains an optimistic outlook on Bitcoin. This optimism persists despite the recent downturn in the cryptocurrency market, which saw Bitcoin’s market capitalization fall to around $500 billion.
The upcoming halving event for Bitcoin in April 2024 has ignited several bullish price predictions. For example, research firm Fundstrat anticipates a staggering 500% increase in Bitcoin’s price, potentially reaching $180,000. Moreover, banking giant Standard Chartered forecasts that Bitcoin’s price could reach $50,000 this year and exceed $120,000 by the end of 2024.
In summary, while the future remains unpredictable, the prospects for Bitcoin’s growth appear encouraging. Only time will determine the accuracy of these forecasts.
The post Bitcoin’s Future: Rising Interest Rates and Bullish Predictions appeared first on BitcoinWorld.
