Arthur Hayes: Here’s How the TradFi Volatility Cycle Benefits Crypto

Arthur Hayes, co-founder of the crypto exchange BitMEX, believes Bitcoin is the “release valve” for fiat printed by traditional finance governments to suppress volatility in financial markets to unnatural levels.

In an essay titled Volatility Supercycle, Hayes discussed how politicians printing money to create a calm economic surface triggers volatility in crypto and pushes the value of digital assets to new highs.

Suppressing Volatility in TradFi

Hayes asserted that policymakers cannot handle any form of volatility in financial markets because of how overleveraged the system is. The American entrepreneur has always been of the opinion that the Federal Reserve (Fed) prints more money when “shit hits the fan.” He said this policy response is a result of authorities unwilling to admit that no one knows what will happen in the future.

Based on the premise that holding an inflated ball underwater requires more energy to maintain its position as it goes deeper, Hayes insists that the amount of printed money needed to maintain the volatility status quo increases exponentially yearly. At this rate, the amount of money to be printed from now until the eventual financial system reset would dwarf the total amount printed from 1971 to date.

According to Hayes, the distortions of volatility in traditional finance systems are extreme globally but even more intense in Pax Americana because the United States cares about the bond market as it is the asset underpinning the dollar (USD), which is the global reserve currency. Other nations focus on controlling the volatility of their domestic currencies against the USD because it affects their ability to trade with the world.

Positive Effects on Bitcoin

Since the financial crisis of 2008, the gross level of bank credit has never been fully drawn down. Hayes said this fiat credit could not be removed because the financial system would collapse under its weight. Also, banks have been forced to create even greater amounts of credit to “smother” volatility.

U.S. banks are expected to issue more credit following the Fed’s latest rate cut, which eased monetary conditions. As the credit increases, the fiat printed to keep volatility in check will find its way into crypto and pump the value of assets in the coming months.

Hayes added that the goal of every investor should be acquiring bitcoin (BTC) at the cheapest cost possible because the volatility of Bitcoin vs. fiat is an asset.