Arthur Hayes was the co-founder of BitMEX and the former CEO. He said that Terra’s loss was due to the changing macroeconomic environment in which the Feds increased rates and tightened its balance sheets.

He also expressed conviction on the broader market in the medium and long term, reiterating that Ethereum could still reach $10,000 at the end of the year. According to him, the market is currently at the bottom or near the top of the cycle and that a return would be possible once the Fed slows down its rate hike process.

Terra’s Fall as a Result of A Brewing Liquidity Crisis

In his latest blog ,, the former CEO predicted that Fed would continue to speedily raise interest rates through Q3, increasing the downward pressure on the crypto market. He suggested that the UST plunge could have been an indication of a local bottom.

Diving into the potentially rooted cause underlying the recent meltdown of Terra’s ecosystem, he agreed with a suggestion that the broader risk-off environment pushed VCs to cash in LUNA investments all at once, eventually leading to a liquidity crisis that drove the stablecoin’s price down. He said that people started to trade their USTs for fiats and other stablecoins after the peg was removed. This led to the collapse of LUNA, its sister token.

” The TerraUSD collapse was caused by global central bank liquidity tightening. As such, I believe this event brought forward pain that would have occurred anyway months down the line as the Fed and others continued to tighten liquidity conditions.”

He clarified however that Fed’s hawkish policy was only an indirect catalyst for Terra’s demise since “its fall was preordained because it was programmed .”

Are we at the bottom now?

By analyzing the correlations between Bitcoin/Ether and the Nasdaq 100 during the recent global equity selloff, Hayes concluded that crypto began to decouple from the broader risky assets and cited such an observation as an indicator of the potential local bottom.

In addition, as the prices of Bitcoin and Ether were both nearing the prior local tops, respectively, Hayes predicted that Bitcoin’s bottom might be in the range of $25,000 to $27,000 while Ether’s bottom may sit in between $1,700 to $1,800. He noted that it was encouraging to see the local low close to the prior all-time high, as this means that there was enough pain .

A Choppy Market Ahead

Although Hayes expressed optimism that the bottom was in, Hayes stated that a rapid ascent of prices may not be possible in the near future. He noted that the market in general will be unstable and volatile in the short-term, but he said that only aggressively changing the Fed’s current policy could bring about a significant market recovery.

“A choppy price action will eviscerate the capital of short-term traders who half-heartedly believe this is the bottom…This is why the politics and macroeconomic picture must coalesce before the crypto market can march meaningfully higher.”

Despite the recent volatility in the broader market, Hayes re-stated his belief that Ethereum could reach $10,000 at the end of the year on the condition of a resumed bull market.