In his latest essay, Arthur Hayes, the founding father of BitMEX, articulates a contrarian perspective on the recent downturn in Bitcoin’s price, refuting the mainstream narrative that attributes the decline to outflows from the Grayscale Bitcoin Trust (GBTC). As a substitute, Hayes points to macroeconomic maneuvers and monetary policy shifts as the actual drivers behind Bitcoin’s volatility.
Monetary Policy And Market Reactions
Hayes kickstarts his evaluation by shedding light on the US Treasury’s recent strategic shift in borrowing, a choice announced by Janet Yellen on November 1. This pivot towards Treasury bills (T-bills) has triggered a considerable liquidity injection, compelling money market funds to reallocate their investments from the Fed’s Reverse Repo Program (RRP) to those T-bills, offering higher yields.
Hayes articulates the importance of this move, stating, “Yellen acted by shifting her department’s borrowing to T-bills, thus adding tons of of billions of dollars’ value of liquidity to this point.” Nonetheless, he contrasts this tangible financial maneuver with the Federal Reserve’s mere rhetoric about future rate cuts and the tapering of quantitative tightening (QT), declaring that these discussions haven’t translated into actual monetary stimulus.
While the standard financial markets, particularly the S&P 500 and the Nasdaq 100, responded positively to those developments, Hayes argues that Bitcoin’s recent price trajectory serves as a more accurate barometer of the underlying economic currents. He remarks, “The true smoke alarm for the direction of dollar liquidity, Bitcoin, is throwing a cautionary sign.”
He notes the cryptocurrency’s decline from its peak and correlates it with the fluctuations within the yield of the 2-year US Treasury, suggesting a deeper economic interplay at work. “Coinciding with Bitcoin’s local high, the 2-year US Treasury yield hit an area low of 4.14% in mid-January and is now marching upwards,” Hayes remarked.
Dissecting True Reasons Behind The Bitcoin Dip
Addressing the narrative surrounding GBTC, Hayes emphatically dismisses the notion that outflows from GBTC are the first catalyst for Bitcoin’s price movements. He clarifies, “The argument for Bitcoin’s recent dump is the outflows from the Grayscale Bitcoin Trust (GBTC). That argument is bogus because once you net the outflows from GBTC against the inflows into the newly listed spot Bitcoin ETFs, the result’s, as of January twenty second, a net inflow of $820 million.”
This realization shifts the main focus to economic mechanisms at play. The crux of Hayes’s argument lies within the anticipation surrounding the Bank Term Funding Program (BTFP)‘s expiration and the Federal Reserve’s hesitancy to regulate rates of interest to a spread that may alleviate the financial strain on smaller, non-Too-Big-to-Fail (TBTF) banks.
Hayes elucidates, “Until rates are reduced to the aforementioned levels, there isn’t any way these banks can survive without the federal government support provided via the BTFP.” He predicts a looming mini-financial crisis within the event of the BTFP’s cessation, which he believes will compel the Federal Reserve to pivot from rhetoric to tangible motion—namely, rate cuts, a tapering of QT, and potentially a resumption of quantitative easing (QE).
“I feel Bitcoin will dip before the BTFP renewal decision on March twelfth. I didn’t expect it to occur so soon, but I believe Bitcoin will find an area bottom between $30,000 and $35,000. Because the SPX and NDX dump resulting from a mini financial crisis in March, Bitcoin will rise as it can front-run the eventual conversion of rate cuts and money printing talk on behalf of the Fed into the motion of pressing that Brrrr button,” Hayes writes.
Strategic Trading Moves In A Turbulent Market
In a revealing glimpse into his tactical trading strategies, Hayes shares his approach to navigating the tumultuous market landscape. He discloses his positions, including the acquisition of puts and the strategic adjustment of his BTC holdings. He concludes:
A 30% correction from the ETF approval high of $48,000 is $33,600. Due to this fact, I feel Bitcoin forms support between $30,0000 to $35,000. That’s the reason I purchased 29 March 2024 $35,000 strike puts. […] Bitcoin and crypto basically are the last freely traded markets globally. As such, they’ll anticipate changes in dollar liquidity before the manipulated TradFi fiat stock and bond markets. Bitcoin is telling us to search for Yellen and never Talkin’.
At press time, BTC traded at $39,963.
BTC price hovers below $40,000, 1-day chart | Source: BTCUSD on TradingView.com
Featured image created with DALL·E, chart from TradingView.com
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