Photo by Kanchanara on Unsplash

In a Friday blog post, Bitmex co-creator Arthur Hayes shared his thoughts on how fiscal authorities will respond to unfavorable economic conditions. This is after the Bank of England revealed it would buy an unlimited amount of government bonds to palliate the effect of the current inflation.

Indeed, the entrepreneur believes central banks globally will soon turn to money printing as a solution to the currently worsening inflation. He is also certain this will drive up the price of digital assets in the process.

Inflation and the Ensuing Fiscal Tightening

The release titled “contagion” stated that all politicians, both in and out of office, typically opt for short-term, quick-fix policies. Hayes brought up past responses to crises noting that the leading central banks all printed money to mitigate the market pressures. 

Naturally, Hayes went on, the influx of funds caused a corresponding rise in inflation. Of course, the authorities were concerned about this and moved to cut down fiat liquidity and tighten monetary conditions. However, sovereign debt markets reportedly bore the brunt of this move. Hayes describes the ensuing bond market rout as “nearly the worst in recorded human, financial history.” 

As officials continue to pull liquidity, returns on bonds have soared significantly in some economies. Hayes also cited the impact of the ongoing Russia-Ukraine conflict and various difficulties globally. The ex-CEO explained that these factors make it a challenge for fiscal authorities to continue to tackle inflation.

The undeclared WW3 is intensifying…The situation is putting a strain on the global economy as it is, and the compounding financial effects of a withdrawal of credit from the system are evident,” the report said.

More Nations Will Print Money

The exchange founder believes in the face of the global situation, central banks will resort to printing more money. Hayes noted that the Bank of England has already adopted Quantitative Easing (QE) to aid its financial system. 

Quantitative Easing is a monetary policy whereby a central bank purchases government bonds or other assets. The institution does so aiming to introduce monetary reserves into the economy to stir some financial activity. The BOE aims to reduce massive yields on certain bonds that nearly prompted the insolvency of multiple pension funds in the UK. 

England’s central bank is reportedly not the only institution failing to uphold its plans to combat inflation. Hayes noted that America’s Federal Reserve has held out, however, other central banks globally will eventually yield. Indeed, the European Central Bank has already begun amassing assets for less stable member nations.

One such nation is Germany where energy laws have created an energy crisis amid rising gas prices. Hayes says the energy situation will negatively affect the nation’s export sector. With the lack of affordable energy, the BitMex founder anticipates that the union will provide Germany with its quantitative easing policy. 

Quantitative Easing Could Aid Crypto and Gold

Notably, Hayes expects that the rise in quantitative easing will be beneficial for “fungible global risky assets.” These are assets such as cryptocurrencies and gold. He explained that the markets for both assets are small compared to the trillions in fiat central banks will print. As such, their values will go up. 

Hayes acknowledged the Fed’s ongoing fight against inflation. However, he expects Bitcoin and gold to appreciate as other central banks inject funds into the global economy.  

Of course, the BitMex founder does not think this will occur overnight. He cites the BoE’s actions as proof that the “politically expedient option” which is money printing won’t go down well in the bond market.

Yield will rise, and the over-leveraged fiat debt-based financial system will quickly buckle.”

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