Arthur Hayes is one of the most important investors in the crypto world and founder of 100x, a venture capital fund focused on crypto projectsHayes is very active on Twitter, where he often posts essays on the state of Bitcoin and other cryptocurrencies.
On June 2, he published a new study called “Shut it Down!”, in which he analyzes the current state of Bitcoin and notes that he believes the leading cryptocurrency has bottomed out and will not continue to fall.
In a lengthy exposition, Hayes explains that the Federal Reserve believes it can withstand 50 basis point rate hikes without the US or global economy suffering. However, risk assets are already suffering.
The current scenario, with the most leveraged global economy in history, the lowest interest rates in history, the highest inflation in the last 40 years and the largest food and energy exporters (Russia and Ukraine) engaged in a war that has paralyzed exports, is causing all eyes in the market to focus on the ability of the Federal Reserve and politicians to withstand the market contraction.
The market will only be able to start its upward path if the Federal Reserve and the bankers pause the rise in interest rates and maintain the size of their balance sheets. The problem remains inflation, which causes workers to lose purchasing power month after month, with each rise in the CPI. In such a complicated scenario, the Central Bank and the Treasury could merge (something that already happened during the Second World War).
Given all this, Hayes raises a few points that could mark the end of Bitcoin's crash and the mark of a top.
Bitcoin and Ethereum are increasingly detached from asset markets
Traditionally, prices of Bitcoin, Ethereum and other cryptocurrencies have been closely tied to the stock market. However, over the past 90 days, cryptocurrencies have shown that are detaching themselves from asset markets such as the Nasdaq 100.
This is a sign of maturity for cryptocurrencies, as well as the possible arrival of a top.
Current price levels are very close to previous ATHs
Hayes has created a kind of rule of thumb to explain this point: If prices are crashing, look back to the all-time highs of previous cycles to get an idea of when the bottom might be reached.
For example, in the case of Bitcoin, the leading cryptocurrency has crashed twice before:
- 2017/18: from $20.000 to $3.000
- 2013: From $12.000 to $160.
ETH also plummeted in 2018, dropping from $1.400 to $80.
According to the Hayes rule, Bitcoin should bottom this time around $20.000 and ETH around $1.500; that is, it could mark support levels around the highs of the last cycle.
Hayes also explains that it is not an exact science and that the limits should not be taken as such. For example, Bitcoin could bottom out at $25.000 or $27.000, while Ethereum could top out at $1.700 or $1.800.
The negative sentiment of the press
Finally, the investor points out that when the market is in the red, the press and media immediately pick up on it. Hayes believes that the media seems to enjoy these periods of decline, using phrases such as: “Bitcoin has no value.”
Conclusions
While Hayes believes that Bitcoin and Ethereum have bottomed (or are about to) and will eventually recover some of their price, he also noted that it won't be a quick process. The investor noted that we will still have to see market declines, as Many actors have lost between 50% and 90% of their investments, so they are in a loss-cutting mindset. They are eager to get out and will sell at any slight uptick.
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