Bucking the conventional wisdom about Bitcoin’s relationship with interest rates, popular macro-analyst Arthur Hayes published a blog post arguing that such traditional economic logic will crumble under the U.S. government’s exorbitant amount of debt.

“Central banks and governments are flailing about trying to use the economic theories of yesteryear to combat the novel situations of the present,” Hayes wrote on Monday.

Since last year, the Federal Reserve has raised its benchmark rate from 0.25% to 5.25% in an attempt to bring inflation back down to 2%. Though its efforts have proven successful so far, Hayes thinks inflation may prove “sticky” going forward, as nominal GDP growth exceeds government bond yields.

According to Hayes’ estimates—based on data from the Atlanta Fed’s GDPNow forecast—nominal Q3 GDP growth remains at a “mind-bogglingly massive” 9.4%, whereas the 2-year US Treasury yield is only 5%.

“Conventional economics says, as the Fed raised rates, growth in a very credit-sensitive economy would falter,” Hayes wrote. This proved true for financial asset markets like stocks and Bitcoin, which cratered in 2022 and washed away capital gains tax receipts for the government, he said.

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Author: Andrew Throuvalas

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