Crypto markets will rebound to $250,000 once liquidity returns, predicts BitMEX co-founder. The current drop in Bitcoin price is due to the tightening USD supply.
A major BitMEX co-founder, Arthur Hayes, has offered a striking new price forecast for Bitcoin (BTC). He believes that recent BTC price drop is not on weak market fundamentals. Instead, he posits that it is being driven by a huge contraction in dollar liquidity around the world. This current scenario offers both an immediate danger and a massive future opportunity for investors.
Market Contraction Plunges Bitcoin Price Amid Liquidity Crisis
Hayes sees BTC potentially slipping to the $80,000 to $85,000 price range close to term. However, he remains very bullish in the long run. He predicts a massive turnaround in the market once there is a significant correction of United States equities. The later return of central bank liquidity will lead to a massive rally for digital assets.
The recent drop from $125,000 to the low $90,000s is of concern to a lot of analysts. This decline occurred while the S&P 500 and Nasdaq 100 hit all-time highs. In fact, Hayes sees this divergence as a signal that something big is now brewing in the global economy in terms of credit.
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Hayes supports his view with the continuous decrease of his dollar liquidity index. This contraction has been evident since July. As such, he anticipates a 10% to 20% stock market correction in the near future. Treasury yields may also reach the five percent range rather quickly.
Such a financial crisis would require the Federal Reserve to take actions on a hurry. Policymakers would soon begin a new money printing scheme. Therefore, this time of market downside will drive Bitcoin lower before a reversal takes place.
In particular, high institutional demand was coming from ETF basis trades. These complex trades are involved in purchasing the spot BTC and selling futures at the same time. As the tightening of the basis spread began, the hedge funds got out of their positions. This action created major Bitcoin ETF outflows.
Artificial Flow Stops as Investors Pressure New Central Bank Easing
The analyst compares market forecasting cycles to forecasting the ski season in Hokkaido. Clearly, both are based on always-changing conditions, and incomplete information. Market results are never guaranteed.
Hayes calls Bitcoin a unique “weathervane” for the level of liquidity in the global fiat currency. Instead, it trades on the basis of the expectation of future money supply. It does not consider the realities of the current market. This distinction is crucial to all traders.
The institutional flows that led to the mask of the declining USD supply are now gone. Thus, Bitcoin is now properly priced in the true weaker liquidity conditions. This artificial support of markets is gone.
Furthermore, the shrinking monthly net asset value (mNAV) premium was a factor, as well, for the firm Strategy. This slowing premium made the need for its Bitcoin acquisitions smaller. Therefore, with these artificial flows evaporated, the market is exposed.
The political rhetoric still indicates that easing is on stream for the US economy. However, markets require specific policy action before reversal. Hayes anticipates a period of weakness followed by the ultimate and decisive bounce back.
Once policymakers put a new liquidity injection in motion, the market trajectory will shift. This surge may be due to political pressure or a balance sheet expansion. Subsequently, this new money will push Bitcoin to $200,000 to $250,000 at the end of the year.
Hayes boosted stablecoin holdings for the immediate term of the short term. Lastly, he mentioned Zcash because of an increase in digital privacy concerns. He is also very bullish on Bitcoin long-term, citing the US money printing eventually.