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Coin Circle (120btc.COM) News: Arthur Hayes, founder of the cryptocurrency derivatives exchange BitMEX, wrote an article today titled "The Denominator" to express his views on the recent banking crisis in the United States. He mentioned that even if Too Big to Fail (TBTF) type banks face funding problems, they can be covered by various government assistance programs, such as the "Bank Term Funding Program" (BTFP) launched in March this year.

But in comparison, non-TBTF type small banks are not so lucky. For example, First Republic Bank could only be acquired by JPMorgan Chase, a TBTF bank, with the assistance of the Federal Deposit Insurance Corporation (FDIC) when its equity was almost zero.

In view of the difficulties faced by the US banking system, Arthur Hayes believes that whether the Federal Reserve directly cuts interest rates or relaxes the conditions for assistance, the result will either be an increase in money supply or a decrease in currency prices. In any case, it will be good for risky assets outside the banking system such as gold and Bitcoin.

Non-TBTF banks face difficulties

Arthur
Hayes explained that in March this year, the Federal Reserve and the Treasury jointly launched the "Bank Term Funding Program" (BTFP), which allows any bank holding US Treasury bonds or real estate mortgage-backed securities (MBS) to hand over the securities to the Federal Reserve and receive 100% of their face value in newly printed US dollars.

The article pointed out that TBTF banks and banks whose assets are mostly US Treasury bonds or MBS securities can benefit from the launch of BTFP because they can hand over eligible bonds to the Federal Reserve and get back US dollars, easily meeting their funding needs, but in contrast, non-TBTF banks are not so lucky because most of their assets do not meet the funding requirements of BTFP.

What is the "denominator" victim? 

In Arthur
Hayes's view, if inflation, interest rates, and bank regulatory systems remain the same, then all non-TBTF banks will go bankrupt, and to avoid the bankruptcy of all non-TBTF banks, two situations must occur. One is that the Federal Reserve cuts interest rates, and the other is that the collateral that meets the BTFP conditions is expanded to any loan on the balance sheet of US banks.

If it is option one, it means that the financial environment will turn to loose, then risky assets such as Bitcoin, gold, stocks, and real estate will all rise; if it is option two, the amount of money that will be printed will be expanded, the prices of gold and Bitcoin will rise, and the prices of stocks and real estate will fall.

According to Arthur Hayes's logic, if you do not buy anti-inflation assets, you will become the "denominator" of the global market and suffer losses silently.

Why not be the "denominator"? Gold and Bitcoin will not lose

Arthur
Hayes finally concluded that if the inflation rate remains high, the Federal Reserve will continue to raise interest rates, or just maintain the current interest rate level, then more banks will go bankrupt, people will see more TBTF rescues, and the government will continue to support and build larger and larger TBTF banks, which will expand the supply of money and gold, and Bitcoin will rise.

If the inflation rate falls and the Federal Reserve quickly cuts interest rates, banks will eventually stop going bankrupt, but this will reduce the price of currency, and gold and Bitcoin will rise. Therefore, Arthur
Hayes concluded that: "You will not lose if you own gold and Bitcoin, unless you believe that the political elite is willing to tolerate the complete failure of the banking system."