In his most recent post, dated May 2, 2024, Arthur Hayes, founder of exchange BitMEX, shared his insights into the crypto market’s recent tumultuous behavior and the broader macroeconomic signals shaping potential future trends. Entitled “Help”, his essay directly addresses the crypto market, which has experienced significant volatility since mid-April.
Stealth money printing is starting
Hayes begins by noting the distress observable in crypto markets, which he attributes to a confluence of factors including the end of the US tax season, anticipated fears about the Federal Reserve’s policy decisions, the Bitcoin halved event, and stagnant growth in assets under management (AUM) for US Bitcoin exchange-traded funds (ETFs).
He interprets these factors as a necessary purge of speculative excess, stating: “Tourists will miss out on the next phase on the beach… if they can afford it. We tough motherfuckers will hoard and, if possible, hoard more of our favorite crypto reserve assets like Bitcoin and Ether, and/or high beta shitcoins like Solana, Dog Wife Hatand dare I say Dogecoin (the OG dog currency).
A significant part of Hayes’ analysis focuses on the Federal Reserve’s recent adjustment to its quantitative tightening (QT) program. Previously set at a reduction of $95 billion per month, the Fed reduced this reduction to $60 billion.
Hayes interprets this as a secret form of quantitative easing, injecting an additional $35 billion per month into the dollar liquidity reserve. He explains: “When interest on reserve balances, RRP payments, and interest payments on US Treasury debt are combined, the reduction in QT increases the amount of stimulus provided to global asset markets each month.” .
Hayes also examines the actions of the U.S. Treasury, especially under Secretary Janet Yellen. He discusses the Quarterly Treasury Reimbursement (QRA) Announcement, which describes expected loans and cash balances for the coming quarters. For the second quarter of 2024, the Treasury forecasts loans of US$243 billion, an amount that Hayes points out as being US$41 billion higher than the previous forecast, due to lower-than-expected tax revenues.
He predicts that this increase in the supply of Treasury bonds could lead to higher long-term rates, a situation that Yellen could combat with yield curve control measures – a scenario that could catalyze a significant recovery in the prices of Bitcoin and cryptocurrencies.
Hayes addresses the failure of First Bank of the Republic, emphasizing the response of monetary authorities as a key indicator of systemic fragility. He criticizes the federal safety net that guarantees the integrity of all depositors, arguing that it masks deeper vulnerabilities in the US banking system and leads to a stealthy form of money printing, since uninsured deposits are effectively guaranteed by the government. This, Hayes argues, is a fundamental misalignment that could lead to significant inflationary pressures.
Buy Crypto in May, Go Away
Hayes is candid about his investment strategies in the current environment. He advocates buying now. “I am buying Solana and Doggie Coins for momentum trading positions. For long-term shitcoin positions, I am increasing my Pendle allocations and will identify other tokens that are “for sale.” I will use the rest of May to increase my exposure. And so it’s time to set it, forget it, and hope the market appreciates the inflationary nature of recent U.S. monetary policy announcements.”
He concludes with a broad prediction that despite recent market volatility, the underlying liquidity conditions created by US monetary and fiscal policies will provide a floor for cryptocurrency prices, leading to a gradual upward trend. “While I don’t expect crypto to immediately realize the inflationary nature of the recent US monetary announcements, I do expect prices to dip, fall and begin a slow climb,” he states, signaling his bullish outlook.
For Bitcoin, Hayes predicts the top cryptocurrency will reclaim the key $60,000 level and then move in a range between $60,000 and $70,000 by August because of the annual summer lull.
At press time, BTC traded at $59,393.
Featured image by Onooki, chart by TradingView.com
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