Michael Howell, CEO of CrossBorder Capital, known for his work on global liquidity, argued that a potential Fed interest rate hike doesn’t necessarily have to be negative for Bitcoin, contrary to popular belief. According to Howell, the determining factor in the modern financial system isn’t the level of the policy interest rate, but rather maintaining the necessary liquidity for debt rollover and keeping the repo and collateral markets stable.
Howell stated that the global financial system has changed significantly in recent years, with capital markets increasingly transforming from structures that finance new investments to mechanisms for refinancing existing debt. According to Howell’s calculations, approximately 80 percent of primary transactions in global capital markets are now linked to debt refinancing. Therefore, rather than interest costs, balance sheet capacity and liquidity—which enable financial institutions to continue lending—are more important factors in the system’s stability.
According to the renowned analyst, this structure prevents interest rate increases from having the same economic impact as in the past. Howell points out that the US government has become a very large net debtor, and when interest rates rise, the government pays more interest to bondholders, thus injecting more cash into the private sector. Howell argues that this mechanism means that interest rate increases can have a stimulating effect under certain conditions, rather than just a tightening effect as traditionally thought.
Howell stated, “If you raise interest rates in the U.S., you’re essentially giving more cash to the private sector. This isn’t a contraction, it’s a stimulus.” According to the analyst, a 25 basis point Fed interest rate hike could meet the expectations of the short-term bond market, help strengthen long-term bonds, lower yields, and reduce volatility in the bond market.
Howell stated that the real critical point for Bitcoin is the liquidity that needs to be maintained in the system, arguing that the US shifting its borrowing increasingly towards short-term Treasury bonds is expanding bank balance sheets and the money supply. Howell describes this process as “monetary inflation” and believes that gold and cryptocurrencies are among the main assets benefiting from this environment.
Howell stated that historical data shows assets like Bitcoin, Ethereum, gold, and silver are highly sensitive to increases in global liquidity. He specifically noted Bitcoin’s strong reaction to liquidity expansion, adding that central banks would be forced to replenish liquidity in the market if a debt rollover crisis were to occur in the financial system. According to Howell, as seen in the 2008 global financial crisis and the Covid period, central banks increasing the money supply to support the system can create strong price movements in gold, silver, and cryptocurrencies.
Howell also believes that the US is forced to maintain short-term borrowing and adequate liquidity in the financial system due to its high public debt. Therefore, the analyst argues that liquidity conditions could remain supportive even after a potential interest rate hike, and that the recent rises in Bitcoin and gold may be linked to the market beginning to price in this situation.
Howell stated that if the Fed raises the policy interest rate by 25 basis points at its next meeting, the long-term bond market could rise, and such a scenario could have positive consequences for financial conditions, contrary to market expectations. According to Howell, the key variable to watch for Bitcoin will be not the interest rate decision itself, but rather how global liquidity, money supply, and repo markets will behave after the decision.
