Arthur Hayes predicts Fed’s “Stealth QE” will revive Bitcoin bull run, citing dollar liquidity drain and U.S. debt expansion as catalysts.
Former BitMEX CEO Arthur Hayes is cautioning crypto investors. He warns against confusing current weakness in the market with the cycle peak. The analyst is arguing that the price of Bitcoin is now largely due to the liquidity of the dollar, rather than the four-year halving cycle. Therefore, he advises traders to husband capital in this volatile period.
Arthur Hayes Blames Dollar Liquidity Drain for Crypto Weakness
Hayes believes the reason for the recent softness in the crypto market is due to a dollar liquidity drain. This squeeze is made even more acute by the current US government shutdown. Specifically, the US Treasury is borrowing money in debt auctions. However, it is not now spending the money. As a result, this process is holding around $150 billion in cash. The funds are sitting in the Treasury General Account.
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Thus, this liquidity vacuum imposes choppy, downward pressure. Nevertheless, according to Hayes, dollar money market mechanics point to an inevitable re-ignition of the bull market. Many traders may wrongly perceive this period as the top. They may then “dump their stack” near the 2021 Bitcoin all-time high’s fourth anniversary.
Hayes makes out a detailed argument that government borrowing will be constant, forcing the Federal Reserve to blow out the balance sheet. Politicians prefer debt issuance, as opposed to unpopular tax increases. Furthermore, projections by TBTF banks and government agencies indicate steady deficits. These deficits will be covered by some $2 trillion per year of debt.
Crucially, the analysis identifies Relative Value (RV) hedge funds as marginal buyers of US Treasuries. Significantly, these funds leverage their purchases by means of repurchase agreements, known as repo. In essence, they borrow overnight cash by pledging the purchased treasury.
Hayes Sees Temporary Crypto Weakness Before Liquidity-Driven Rebound
The marginal providers of cash (money market funds and commercial banks) have dwindling reserves. As a result, it gets tough on cash. To avoid a catastrophic financial system failure, the Fed needs to step in. This is done by the use of the Standing Repo Facility (SRF). Hence, the Fed essentially prints money to ensure that RV funds can get cheap and predictable financing.
Therefore, the expansion of SRF balances is an indication that the Fed is cashing political checks with printed money. Hayes calls this process “Stealth Quantitative Easing (QE).” This indirect creation of dollars is to avoid the negative optics of traditional QE. Ultimately, the ever-increasing debt of the US will require the use of SRF on a repeated basis. This move will be to expand the global dollar supply. As a result, Hayes expects this phenomenon to kick off the Bitcoin bull market again.
In conclusion, Arthur Hayes believes that the crypto market’s weakness is temporary. He expects the Federal Reserve’s “Stealth QE” into the system to create new liquidity. This, he says, will increase the amount of dollars in the world and cause the next Bitcoin bull run. Hayes recommends that traders be patient and preserve their capital during this volatile phase. According to him, as soon as liquidity returns, the long-term cycle of Bitcoin is back strongly to the upward path.
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