Just when everyone thought the United States, the global financial behemoth, was bound to enter a recession, a surprising turn of events unfolded. Financial risk assets like Bitcoin and high-tech stocks such as Nvidia (NVDA), contrary to popular belief, are not only maintaining their high values, but in some instances, shooting up further, defying the gravitational pull of the Federal Reserve’s steepest rate hike cycle in decades.
At a keynote at Korea Blockchain Week, Arthur Hayes, the founder of BitMEX and current Chief Investment Officer at Maelstrom, gave a fascinating proposition. He argued that the Federal Reserve’s tactics to combat inflation via interest rates hikes have inadvertently fueled unintended consequences on the economy. According to Hayes, rising financial asset prices can enhance capital gains taxes and government revenue. However, the moment the Fed hikes rates, these prices stagnate, consequently reducing tax revenue. This, coupled with the political hostility of austerity has essentially raised deficits, pushing U.S. Treasury to issue more bonds.
Interestingly, Hayes opined that this perplexing scenario can spur nominal GDP growth, creating an interesting paradox where rate hikes inadvertently support economic growth. “Whether the Fed raises or cuts, we’re in a good position as a cryptocurrency industry,” Hayes added.
One of Hayes’ more captivating insights was his prediction about the AI companies, considering these companies hold significant cash reserves and robust revenue streams. Hence, they’re less reliant on banks for loans or credit than their traditional counterparts. In light of this, he believes that the global government bond market is on the verge of default.
But why the emphasis on AI Companies? For Hayes, the answer lies in their business model. According to him, AI companies have less need for banks. Thus, instead of investing excess cash in conventional firms like General Motors, he suggests directing investments towards the likes of Nvidia.
Companies benefiting from this AI-crypto bridging include Filecoin (FIL). Despite a rocky journey since its hype-filled launch, Hayes suggests its potential growth from increasing computational capacity added to its network. Nevertheless, he also cautions against investing in AI too soon, citing long IPO timelines, hefty token lockup periods, and potential mismatched product-market fit as potential downsides.
In his prelude to the inevitable future, Hayes pointed out at the convergence of the three manias—AI, crypto, and money printing, which he believes, will give rise to a significant asset bubble. “Together, these three manias will produce the biggest asset bubble of 80 years, comparable to the Great Depression in the 1930s,” stated Hayes. Thus, the intriguing confluence of these sectors is a space to watch in the coming times.
Source: Coindesk
