In March, the crypto market will face imminent macroeconomic risks, as highlighted by BitMEX co-founder Arthur Hayes.
The analysis of the co-founder of BitMEX for next March: risks in the crypto world
This analysis explores the intricate interaction between the Federal Reserve’s Reverse Repo Program, the Bank Term Funding Program, and an upcoming interest rate decision, shedding light on potential disruptions and their cascading effects on the cryptocurrency landscape.
The co-founder of BitMEX, Arthur Hayes, has outlined three macroeconomic risks that cast a shadow over the cryptocurrency market in March.
In a recent blog post, Hayes delves into the potential impact of the Federal Reserve’s Reverse Repo Program (RRP), the Bank Term Funding Program (BTFP), and the impending interest rate decision, highlighting the intricate connections between these factors and the stability of the cryptocurrency market.
The influencing factors
The Reverse Repo Program
Hayes begins his analysis by focusing on the Reverse Repo Program, a crucial tool in short-term liquidity management.
By using securities as collateral, financial institutions can obtain returns on their liquidity reserves. According to Hayes, the decline in the RRP balance has injected liquidity into the financial markets, with a forecast of a bottom-out by early March.
Hayes warns of the need for alternative sources of dollar liquidity to support the market, highlighting the potential repercussions on crypto assets.
Bank term financing program
Another crucial factor in Hayes’ evaluation is the Bank Term Funding Program, which will expire on March 12th.
He hypothesizes that US Treasury Secretary Janet Yellen could initially oppose the renewal of the program, raising concerns about financial instability due to the reduction of liquidity.
Hayes argues that the failure of major banks could force Yellen to reconsider the issue, leading to the renewal of the program.
This could trigger a chain reaction that would affect not only the banking sector but also broader financial markets, including crypto assets.
Decision on Federal Reserve interest rates
The upcoming Federal Reserve meeting on March 20 adds an additional layer to Hayes’ analysis. He predicts the possibility that the central bank will initiate its first interest rate cut since March 2021.
According to Hayes, this sequence of events is crucial in determining the future availability of dollar liquidity by the Federal Reserve and the US Treasury.
He predicts a significant correction in the cryptocurrency market around March 12, potentially followed by a rebound fueled by expectations of further liquidity injection.
Impact of the cryptocurrency market
Hayes predicts a “significant correction” of bitcoin around March 12th, in line with broader trends in the financial market.
It suggests a correction of 20%-30%, which could rise to 30%-40% if certain conditions occur, such as the trading of spot bitcoin ETFs listed in the United States.
However, it predicts a recovery of the positive trend by the end of March, supported by speculations about the upcoming halving event in April.
Recognizing the potential for alternative outcomes, Hayes considers scenarios in which the decline in RRP is more gradual, the BTFP is extended, or the Fed’s decision on interest rates becomes less critical.
In addition, it highlights global events, such as the injection of yuan credit by China or the shift of Japanese investors from US Treasuries, as factors that could introduce unexpected variables into the forecasts.
The co-founder of BitMEX, Arthur Hayes, presents a meticulous analysis of the macro risks that the cryptocurrency market will have to face in March.
His insights provide a comprehensive understanding of the intricate connections between the programs and decisions of the Federal Reserve, highlighting their potential impact on liquidity and, consequently, on the stability of the cryptocurrency market.
During the month of March, market operators will closely monitor these factors, weighing the implications outlined by Hayes in this in-depth analysis.