Arthur Hayes, co-founder of BitMEX and Maelstrom, suggests that China’s anticipated quantitative easing (QE) and economic stimulus measures could create a favorable environment for Bitcoin.
As China grapples with a severe economic slowdown, Hayes believes the government may resort to large-scale money-printing, which he calls “monetary chemotherapy,” to inject liquidity and spur growth. This, he argues, would make Bitcoin an attractive hedge against inflation for Chinese citizens.
China’s real estate crisis and the push for QE
China’s economy heavily depends on its real estate sector, with local governments leasing land to developers to fund their budgets. However, this model took a hit when China’s property bubble burst in 2020, leading to defaults by major developers like Evergrande. Construction projects were left unfinished, banks were saddled with bad loans, and property values fell sharply, impacting the middle class.
Youth unemployment also rose, worsening the economic outlook. Hayes believes these conditions drive China toward QE to inject capital and stabilize the economy. He argues that the real estate market and broader economy could only grow with fresh cash flowing into the system.
Inflation risks and Bitcoin as a hedge
Hayes likens China’s impending QE to “monetary chemotherapy,” where the People’s Bank of China (PBOC) directly pumps cash into the economy to ward off economic deterioration. Recently, the PBOC began purchasing local government bonds, signaling the start of what Hayes considers an all-out money-printing campaign.
He believes this increased money supply will lead to inflation, making Bitcoin an appealing alternative for preserving wealth. Hayes notes that while the government banned yuan-bitcoin exchanges in 2017, underground peer-to-peer platforms have allowed Chinese citizens to continue acquiring Bitcoin. According to Hayes, as inflation pressures mount, more people in China will likely turn to Bitcoin to protect their savings, creating a parallel market for the cryptocurrency.
Yuan stability and Bitcoin’s role in wealth preservation
Despite the anticipated QE, Hayes does not foresee a yuan collapse. He attributes the currency’s resilience to China’s substantial trade surplus and agreements with countries like Russia and Saudi Arabia, which allow for resource purchases in yuan.
This arrangement provides a buffer against fluctuations other currencies might face after QE measures. Although Hayes doesn’t predict a mass exodus from the yuan, he believes that China’s elite and middle class, seeking to safeguard their wealth from inflation, will increasingly consider Bitcoin.
He draws a parallel to August 2015, when a sudden devaluation of the yuan led Bitcoin’s price to surge. Hayes sees Bitcoin as a unique asset that stands apart from government-controlled monetary systems, offering a haven for investors looking to protect their purchasing power in uncertain economic conditions.