MW Crypto, the dollar, stocks and credit are telling the Fed it needs to cut, popular strategist says
By Jules Rimmer
Huge falls in crypto assets suggest a breakdown in trading sentiment that only a Fed rate cut might reverse, says Bank of America's Michael Hartnett
Despite major inflows in 2025, bitcoin has failed to serve as a haven asset and has delivered a negative return.
The sharp fall in cryptocurrencies is a sign that liquidity is drying up and that the Federal Reserve needs to cut interest rates, a leading bank strategist said Friday.
Bank of America's Michael Hartnett, who said that the 35% peak-to-trough decline for bitcoin (BTCUSD) and the 45% slide for Ethereum (ETHUSD) indicates that the Fed must capitulate - by cutting interest rates - in order to avoid a "liquidity event."
Crypto..."peak global liquidity"
Signs that the Federal Reserve will do just that emerged on Friday after New York Fed President John Williams said there was scope to cut interest rates in the near term.
Anticipating the Fed's capitulation to market pressure, Bank of America's chief equity strategist doubled down on his call to go long zero-coupon U.S. Treasury bonds ZROZ that not only benefit from lower rates, but supercharge their returns by avoiding reinvestment risk from interest paid.
Hartnett's weekly "Flow Show" report noted that the first sniff of that Fed capitulation would be felt in the crypto markets first because it represents "the frontier of liquidity and speculation." He observed that, despite its reputation as an inflation hedge, bitcoin - now down around 10% for the year - has singularly failed that task. Crypto has sucked in $46 billion of retail inflows this year, hence its importance as a lead indicator for sentiment.
The exodus of $2.2 billion from crypto funds this week, the second-largest on record, illustrates the nervousness in this space, as does the appeal of gold in times of uncertainty, made evident by inflows of $1.9 billion.
Hartnett made the opposite case about the Bank of Japan. Japanese government bond yields BX:TMBMKJP-10Y have broken higher, with the longest-dated BX:TMBMKJP-30Y declining 12% in value this year, on track for their worst return since the 1970s.
2025 is the worst year for long-dated JGBs since the 1970s
At the same time, the yen (USDJPY) is heading toward 40-year lows as the Bank of Japan keeps real rates (nominal yields minus inflation) minus-2%. The big stimulus package announced by Prime Minister Sanae Takaichi indicates their debasement policy is still in place.
The direction of travel for the yen is crucial for the carry trade, in which traders short low or negative-yielding Japanese assets to fund long positions in risk-on assets elsewhere. An emergency hike, heralding a policy reversal, would prompt a major repatriation of Japanese savings.
Hartnett also referenced the troubles in credit and private equity as examples of peak liquidity and animal spirits.
-Jules Rimmer
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(END) Dow Jones Newswires
November 21, 2025 09:25 ET (14:25 GMT)
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