The BitMEX co-founder says he’s not trading the upcoming U.S. presidential election, focusing instead on a potential move by the Federal Reserve that could push bitcoin higher.
Posted November 1, 2024 at 9:30 am EST.
Crypto industry OG Arthur Hayes has no plans to trade the upcoming U.S. presidential election, despite the potential volatility and market swings it may usher in.
In the latest episode of Unchained, Hayes explained that rather than taking on election night risk, he’d rather be doing something more relaxing — like stretching in his yoga room.
For Hayes, trading election outcomes isn’t an attractive play, given what he calls an unreliable return profile. He argued that chasing election trades is like “trying to eke out a few percentage points,” which, to him, just isn’t worth the potential downside.
“There could be some short-term volatility in terms of people not accepting the result,” he said. “But at the end of the day, the American population is not voting on austerity versus ‘Let’s print more money’ … they’re voting on who they’re going to hand it out to.”
Hayes said the Federal Reserve’s fundamental fiscal policy — to keep printing money — will remain the same regardless of who wins the keys to the Oval Office. He said the bigger concern is that even if he were to correctly pick the winner, short-term market reactions are just too unpredictable.
“You could actually lose money, even if you’re right,” he said. “Trump wins, cool, and we sell off 5% — that could happen.”
Read more: Why Altcoins May Be the Best Bet if Trump Wins the U.S. Presidential Election
Instead of getting wrapped up in election night trades, Hayes is watching for something he considers much more influential on the markets: the Federal Reserve’s approach to quantitative easing (QE).
According to Hayes, the election results are less relevant to market performance than the U.S. government’s escalating debt and spending, which could pressure the Fed to step back into QE.
The Fed has recently been winding down its balance sheet through quantitative tightening (QT), which takes liquidity out of the system. But Hayes warned that QT may be reaching its breaking point as the financial system is already showing signs of strain, with recent spikes in interbank lending rates and mounting pressure on lenders to finance increasing government debt.
“We’ve reached the point where the amount of banking reserves might be … where the Fed needs to start doing QE again,” Hayes said, referring to ongoing challenges involving the banking system’s reserve levels.
He said U.S. treasury bond demand had largely shifted to hedge funds running arbitrage strategies rather than traditional “real money buyers” such as China or Japan.
“The only people buying treasury bonds at these prices are hedge funds doing these arbitrage trades,” he said. “It’s not anyone who actually wants to own this debt. Everyone knows it’s trash debt.”
In these circumstances, banks are lending to hedge funds, collateralized by T-bonds, to facilitate purchases. But as federal borrowing grows and the government issues more debt, banks’ balance sheets get squeezed.
“We get to the situation where the banking reserves are inadequate for the level of federal borrowing,” Hayes said, pointing out that if that happened, the Fed’s options would be limited: Either the federal government would have to stop spending — which Hayes said would be unlikely — or the Fed would pull a U-turn on QT and move back to QE to ensure that banks could maintain sufficient reserves.
If the Fed returned to QE, Hayes expects that would be a major tailwind for bitcoin. Historically, when the Fed has engaged in QE, risk assets such as bitcoin have rallied as investors have sought alternatives to cash in an inflationary environment.
“The Fed and Treasury are very hyperactive in making sure there is no disturbance in the financial system,” he said, recalling the Fed’s swift response during last year’s banking crisis. Hayes expects a similar reaction if market stresses increase, with the Fed likely to step in to inject liquidity.
He said the conditions are ripe for the Fed to shift back into QE mode, which would make bitcoin an appealing asset.
For investors, Hayes’ message is clear: Don’t get distracted by the election night hype. He advises those interested in bitcoin to focus on the Fed’s long-term trajectory rather than short-term political noise.
“Trump wins, Harris wins … this stuff doesn’t matter,” he said. “The finances aren’t changing, the math, the compounding interest, the demographics… [they’re] not changing.”
Read more: Why Bitcoin and Crypto Prices Are Set to Surge Regardless of Who Wins the U.S. Presidential Election
In his view, the steady buildup of U.S. debt and the likely Fed response will be the real drivers of a potential bitcoin rally.
Should QE restart, bitcoin stands to benefit from the influx of liquidity — not because of the election, but because of fundamental pressures in the U.S. financial system.
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