“Everyone who can go bankrupt already has”

BitMEX co-founder Arthur Hayes believes the crypto market downturn may bottom out, based on bankrupt firms’ Bitcoin holdings.

“I think we’re in the bottom phase,” said Hayes, whose exchange introduced the popular derivative, the perpetual swap. Crypto commentator Scott Melker praised Hayes for this innovation, before asking him if crypto markets are bottoming out.

In his explanation, Hayes told the background behind the decline in cryptocurrency markets over the past year. According to Hayes, an increase in stimulus money, due to the easing of the coronavirus, fed the growth of crypto markets last year.

“They were all able to achieve this ‘success’ because they were riding on the back of as much free money as possible in the reserve wealth of the largest economy seen since the last global war,” Hayes said.

But when the stimulus translated into skyrocketing inflation, many firms struggled to maintain competitive lending rates as crypto prices plummeted. Hayes also pointed out that persistent inflation has triggered the most aggressive monetary policy tightening in the last 40 years.

Bottom based on Bitcoin

“Looking forward, pretty much everyone who can go bankrupt has gone bankrupt,” Hayes said. “The biggest exchanges, the biggest centralized lenders.” One reason Hayes seems so confident in this assessment has to do with these firms’ Bitcoin holdings.

Hayes explains the pattern that takes place when centralized lenders start to run into trouble. After calling in loans, these firms tend to sell Bitcoin and Ethereum in an attempt to remain solvent. In effect, BTC serves as the “reserve asset of crypto,” Hayes said. “It is liquidated first because it is the most pristine asset and the most liquid.”

While these struggling companies are left with largely illiquid altcoins on their books, Hayes believes BTC has endured. “At least for Bitcoin,” Hayes said, “I’m pretty sure the biggest, most irresponsible entities have all had to sell all their Bitcoin to the diamond hands.”

Previous prediction

Meanwhile, Hayes shared a different sentiment regarding Bitcoin several weeks ago. The BitMEX founder suggested that Bitcoin would crash to $10,000 if Genesis went bankrupt.

Earlier, lending unit Genesis Global Capitals announced it had temporarily suspended redemptions due to “abnormal withdrawal requests.” Defaults by Three Arrows Capital and the recent collapse of FTX had forced the company into a liquidity crisis.