Arthur Hayes, co-founder and former CEO of BitMEX, who now runs a family office called Maelstrom, outlined three key macroeconomic variables that could lead to a โruthless demise of all crypto touristsโ in March.
The conflicting variables relate to the Federal Reserve's Reverse Repurchase Program, the Bank Term Financing Program and the March interest rate decision, Hayes wrote in a blog post Thursday.
The PRR is a central bank tool to help manage short-term liquidity, using securities, such as government bonds, as collateral, allowing financial institutions to earn returns on cash reserves. The BTFP allows central banks to provide longer-term loans to commercial banks, using similar high-quality assets as collateral, contributing to the stability of the banking sector.
Hayes argues that liquidity has been injected into financial markets through a decline in the PVP balance, which he expects to bottom out in early March based on the rate of decline in 2023. Another source of dollar liquidity is then required to โ keep the party going.โ goes,โ he said. โWithout other new sources of dollar liquidity, bonds, stocks and I think cryptocurrencies will also take the win. โI loaded crypto in the second half of 2023 and I think between now and April is a no-trade zone in terms of additional risk.โ
Another risk comes from the BTFP, which is set to expire on March 12. Hayes suggested that US Treasury Secretary Janet Yellen might initially resist renewing the program, which could lead to financial instability due to a further reduction in liquidity. This decision could trigger a chain reaction that would affect the banking sector and financial markets in general, including crypto assets.
However, if this leads to the bankruptcy of a few sufficiently large banks, similar to the case collapses Seen in March of last year, Hayes maintains that Yellen will be forced to renew the program. "The combination of a lack of liquidity flowing from the PRR and a lack of printed money to cover bond losses on banks' balance sheets will decimate financial markets globally," she said. โThis is a correlation in a moment. โAll assets, including cryptocurrencies, will fall together as the market hyperventilates at the prospect of the free market working again and cleaning up the system of insolvent banking institutions.โ
The Federal Reserve meeting on March 20 also looms large in Hayes' analysis, with the possibility of the central bank initiating its first rate cut of at least 0.25% since it began raising rates. in March 2021.
"If my forecast is correct, the market will bankrupt some banks within that period, forcing the Federal Reserve to cut rates and announce the resumption of the BTFP," Hayes wrote, arguing that this sequence of events is crucial in determining the future availability of Liquidity in dollars of the Federal Reserve and the United States Treasury.
Crypto Market Impact
Hayes anticipates that bitcoin would โcorrect significantlyโ around March 12 along with broader financial markets in this scenario, but would recover before the Federal Reserve meeting amid expectations of further liquidity injection. โI expect Bitcoin to see a healthy 20% to 30% correction from whatever level it reached in early March,โ Hayes said. โThe failure could be even more serious if the list of US-listed spot bitcoin ETFs have already started trading.โ
โImagine if the anticipation of hundreds of billions of fiat money flowing into these ETFs at some future date propelled Bitcoin above $60,000 and near its 2021 all-time high of $70,000,โ he added. โI could easily see a 30% to 40% correction due to a drop in dollar liquidity. โThatโs why I canโt buy bitcoin until the March decision dates have passed.โ
However, by the end of March, Hayes expects the cryptocurrency market to resume a positive trend amid speculation surrounding the impact of the halving event in April, when Bitcoin's block reward is halved. .
Alternative scenarios and global curves
Hayes acknowledged that if his thesis is wrong, alternative outcomes would be that the PVP decline is more gradual, shoring up liquidity until the second quarter, that the BTFP is extended before the March deadline, or that the rate decision The Federal Reserve's interest rate may become less critical due to the overall market situation. stimulus.
Additionally, global events such as China's substantial injection of yuan credit into global markets or the selling of U.S. Treasuries by Japanese investors in favor of higher-yielding Japanese bonds could alter the forecast, Hayes said.
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