Here’s how the TradFi volatility cycle benefits crypto according to Arthur Hayes

Arthur Hayes, co-founder of crypto exchange BitMEX, believes that fiat is a “release valve” printed by traditional financial governments to suppress volatility in financial markets to unnatural levels.

In his essay titled The Volatility Supercycle, Hayes discusses how politicians printing money to create a stable economic surface can fuel volatility in crypto and push the value of digital assets to new heights.

Suppress volatility in TradFi

Hayes said policymakers could not accommodate any volatility in financial markets because of how overburdened the system was. The American entrepreneur has always been of the view that the Federal Reserve (Fed) “hits the fan” by printing more money. This policy response is due to the authorities' unwillingness to accept that no one knows what will happen in the future, he said.

On the premise that holding an inflated ball underwater requires more energy to maintain its position as it goes deeper, Hayes insists that the amount of printed money required to maintain buoyancy increases exponentially each year. At this rate, the amount of money printed between now and the last reset of the financial system will dwarf the total amount printed from 1971 to date.

According to Hayes, the volatility distortions in the traditional financial system are worst globally but even more acute in Pax Americana because the US dollar (USD) is the world's reserve currency for the bond market. Other countries focus on controlling the volatility of their domestic currencies against the USD because it affects their ability to trade with the rest of the world.

Positive effects on Bitcoin

In the year Since the 2008 financial crisis, the overall level of bank lending has not fully declined. Hayes says that this fiat credit cannot be eliminated as the financial system collapses under its weight. Also, banks were forced to create large amounts of credit to “suppress” volatility.

US banks are expected to lend more following the Fed's latest rate cut, which has eased monetary conditions. As credit continues to rise, fiat printed to control volatility will find its way into crypto in the coming months and drive up the value of its assets.

Hayes added that every investor's goal should be to get Bitcoin (BTC) at a cheap price because the volatility of Bitcoin vs fiat is wealth.