Altcoins are sick. The prescription? Buy.
That’s what BitMEX co-founder Arthur Hayes advised investors to do in a Friday essay where he declared that “shitcoins are sickly” after the October 10 liquidation event that took out $19 billion.
But with the Federal Reserve printing $40 billion a month through its new Reserve Management Purchases programme — which Hayes reckons mirrors quantitative easing and will shoot Bitcoin to $200,000 by March — conditions are improving.
“It will take time for the altcoin complex to heal, but for those who husbanded their precious capital and read the documents about how exchanges operate, it’s time to dumpster dive,” Hayes wrote.
For the most part, altcoins have had a pretty dismal year as retail traders disappeared and digital asset treasuries that mostly focused on Bitcoin and Ethereum took control of the market.
Things got particularly dire when hedge fund investors began pulling capital after seeing brutal October returns, causing a relentless flow of selling that kept altcoins in a slump, Hayes argued.
But the crypto angel investor reckons a new bout of Fed money printing will revive demand for leverage and so-called synthetic dollars, creating conditions for recovery.
October 10
October 10 was not your average downturn. More than $19 billion was wiped out in a liquidation event that tore through the cryptocurrency market.
“The October 10th wipeout materially harmed many individuals and hedge fund liquid traders,” Hayes wrote.
Hayes said he believes limited partners — institutional investors backing crypto hedge funds — pulled money after seeing steep losses. Then, their redemption requests forced funds to sell regardless of the price.
Ethereum and Solana, for example, dramatically underperformed Bitcoin, as did alternative cryptocurrencies that used to rally harder than Bitcoin during bull markets.
Worse yet, retail traders — the volatility-hungry cohort that rotated profits from Bitcoin into altcoins — have largely disappeared, Saad Ahmed, head of APAC at crypto exchange Gemini, told DL News.
“There would be traders who were getting crazy gains during those times, but we haven’t seen that,” Ahmed said.
But there’s a new tool in town.
Reserve Management Purchases
Hayes reckons that the Federal Reserve is boosting the supply of US dollars by implementing its new tool, Reserve Management Purchases, or RMP.
Money printing through RMP will revive altcoins by creating demand for leverage, according to Hayes.
“As the price of money falls because of Fed rate cuts, and the quantity grows because of RMP, Bitcoin rises and creates a demand for leverage supplied by synthetic dollars,” Hayes wrote.
Basically, lower interest rates and more money make borrowing cheaper, in turn nudging traders to use that leverage for bigger bets.
Where will the bets go? Altcoins, says Hayes.
