Arthur Hayes, the co-founder and former CEO of leading crypto derivatives platform BitMEX, said Terra’s failure was a byproduct of the macroeconomic environment as the Feds raised rates and tightened up its balance sheet.
He also expressed conviction on the broader market in the medium and long term, reiterating that Ethereum could still reach $10,000 at the end of the year. In his view, the market currently is either nearing or at the bottom of the cycle, and a comeback would begin once the Fed slows down the rate hiking process.
Terra’s Fall Resulting From A Brewing Liquidity Crisis
In his latest blog post, the former CEO predicted that the Fed will continue the speedy process of raising interest rates throughout the Q3, heightening the downward pressure currently imposed on the crypto market. He also touted the possibility that the incident of UST plunging may have been a sign of a local bottom.
Diving into the potentially rooted cause underlying the recent meltdown of Terra’s ecosystem, he agreed with a suggestion that the broader risk-off environment pushed VCs to cash in LUNA investments all at once, eventually leading to a liquidity crisis that drove the stablecoin’s price down. He added that once the peg came off, people began to swap their USTs for other stablecoins or fiats, which worsened the situation culminating in the total collapse of its sister token, LUNA.
“The TerraUSD collapse was an indirect result of global central bank liquidity tightening. As such, I believe this event brought forward pain that would have occurred anyway months down the line as the Fed and others continued to tighten liquidity conditions.”
However, he clarified that Fed’s hawkish policies were only an indirect catalyst as the final nail upon Terra’s coffin since “its collapse was preordained because of how it was programmed.”
Are We At The Bottom Now?
By analyzing the correlations between Bitcoin/Ether and the Nasdaq 100 during the recent global equity selloff, Hayes concluded that crypto began to decouple from the broader risky assets and cited such an observation as an indicator of the potential local bottom.
In addition, as the prices of Bitcoin and Ether were both nearing the prior local tops, respectively, Hayes predicted that Bitcoin’s bottom might be in the range of $25,000 to $27,000 while Ether’s bottom may sit in between $1,700 to $1,800. Thus, he noted that it’s encouraging that the local low is quite close to the previous all-time high because “it means a sufficient amount of pain was felt.”
A Choppy Market Ahead
Despite being hopeful that the bottom was already in, Hayes said, “a quick ascent” of prices might not occur in the immediate future. Noting that the broader market will remain unstable and choppy in the short term, he insisted that only the Fed aggressively changing its current policy could lead to a substantial market comeback.
“A choppy price action will eviscerate the capital of short-term traders who half-heartedly believe this is the bottom…This is why the politics and macroeconomic picture must coalesce before the crypto market can march meaningfully higher.”
Despite the recent volatility in the broader market, Hayes re-stated his belief that Ethereum could reach $10,000 at the end of the year on the condition of a resumed bull market.