Arthur Hayes, the founder and former CEO of the BitMex crypto exchange, has warned that Bitcoin (BTC)  and the digital assets market could face a possible downturn if the Federal Reserve does not pivot its monetary policy.

In particular, Hayes suggested the scenario could arise if Bitcoin’s current rally has been triggered by the market frontrunning a resumption of printing money by the Fed, he said in a blog post published on January 19.

“If the Fed does not follow through with a pivot, or multiple Fed governors talk down any expectation of a pivot even after ‘good’ consumer price index (CPI) prints, Bitcoin will likely crash back down towards previous lows,” he said. 

Furthemore, Hayes warned that if such a scenario occurs, the effects will spill over to other risky assets while predicting that pivoting will likely give Bitcoin more strength. 

Bonds, equities, and every crypto under the sun all get smoked as the glue that holds together the global USD-based financial system dissolves. <…> If the Fed does follow through with a pivot, Bitcoin will continue its strong performance, and this rally becomes the start of a secular bull market,” he added. 

Bitcoin’s possible bottom

Interestingly, despite issuing the warning, Hayes stated that he expects the Fed to ‘subsequently move to print money and avert another financial collapse.’ If this is the situation, the BitMex founder noted that it would mark the local bottom for risk assets such as Bitcoin. 

It is important to note that investors and traders closely watch the Fed’s monetary policy, and any change in its stance can significantly impact the markets. Notably, with the CPI slowdown, the Fed will likely apply breaks on the interest rate. 

Bitcoin rallying after sustained lows 

After consolidating below $17,000 for weeks, Bitcoin has rallied at some point, reclaiming the $23,000 level. The rally was sparked by a drop in the U.S. CPI numbers signaling a possible slowdown in interest rate hikes.

Consequently, Hayes stated that the current gains might be part of Bitcoin’s rebound from the lows but cautioned investors should expect a new plateau and sideways trading until the United States dollar liquidity conditions improve. 

Indeed, the current Bitcoin momentum has shrugged off the effect of the FTX crypto exchange collapse that saw the maiden digital asset test levels below $15,000. By press time, Bitcoin was valued at $22,822.

Featured image via CNBC Africa YouTube.

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