The Real Drivers Behind Bitcoin’s Volatility
In his latest essay, Arthur Hayes, the founder of BitMEX, offers a contrarian perspective on the recent downturn in Bitcoin’s price. He argues that the mainstream narrative attributing the decline to outflows from the Grayscale Bitcoin Trust (GBTC) is misleading. Instead, Hayes points to macroeconomic maneuvers and monetary policy shifts as the true drivers behind Bitcoin’s volatility.
Monetary Policy And Market Reactions
Hayes begins his analysis by highlighting the US Treasury’s strategic shift in borrowing, announced by Janet Yellen. This move towards Treasury bills (T-bills) has resulted in a significant liquidity injection. Money market funds have reallocated their investments from the Fed’s Reverse Repo Program (RRP) to T-bills, which offer higher yields.
According to Hayes, this decision by Yellen has added hundreds of billions of dollars’ worth of liquidity. However, he notes that the Federal Reserve’s discussions about rate cuts and quantitative tightening (QT) have not translated into actual monetary stimulus.
Bitcoin as an Economic Barometer
While traditional financial markets responded positively to these developments, Hayes argues that Bitcoin’s recent price trajectory provides a more accurate reflection of underlying economic currents. He suggests that Bitcoin serves as a “smoke alarm” for the direction of dollar liquidity.
Hayes correlates Bitcoin’s decline with fluctuations in the yield of the 2-year US Treasury, indicating a deeper economic interplay. The 2-year US Treasury yield hit a low in mid-January and has been increasing since then.
The True Reasons Behind the Bitcoin Dip
Hayes dismisses the notion that outflows from GBTC are responsible for Bitcoin’s price movements. He explains that when you consider the net outflows from GBTC against the inflows into newly listed spot Bitcoin ETFs, there is actually a net inflow of $820 million.
The focus then shifts to the Bank Term Funding Program (BTFP)’s expiration and the Federal Reserve’s hesitancy to adjust interest rates for smaller banks. Hayes predicts a potential mini-financial crisis if the BTFP ends, which could lead to rate cuts, a tapering of QT, and even quantitative easing (QE) by the Federal Reserve.
Strategic Trading Moves in a Turbulent Market
Hayes shares his tactical trading strategies, revealing his approach to navigating the turbulent market landscape. He discloses his positions, including purchasing puts and adjusting his BTC holdings. Hayes believes that Bitcoin will find support between $30,000 and $35,000 and anticipates a rise in Bitcoin’s price as the traditional financial markets experience a mini financial crisis in March.
Hot Take: Bitcoin Anticipates Changes in Dollar Liquidity
According to Hayes, Bitcoin and crypto markets are the last freely traded markets globally and can anticipate changes in dollar liquidity before traditional fiat stock and bond markets. He suggests that Bitcoin is signaling us to pay attention to Janet Yellen’s actions rather than her rhetoric. At press time, BTC traded at $39,963.
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