In his latest post dated May 2, 2024, Arthur Hayes, founder of the BitMEX exchange, shared his thoughts on the recent turbulent behavior of the cryptocurrency market and the broader macroeconomic signals shaping potential future trends. Titled “may day“, his article directly addresses the cryptocurrency market, which has seen significant volatility since mid-April.
Hidden money printing begins
Hayes begins by pointing to the perceived distress in cryptocurrency markets, which he attributes to a combination of factors including the end of the US tax season, preemptive concerns about Federal Reserve policy decisions, the Bitcoin halving event, and stagnant growth in assets under management. (AUM) for US exchange-traded funds (ETFs).
He explains these factors as a necessary purge of speculative excess, saying: “Next, tourists will sit on the beach… if they can afford it. We tough bastards will collect, if possible, more of our favorite crypto-reserve assets like Bitcoin.” And Ether, and/or high-beta coins like Solana, Dog Wif Hat, and dare I say Dogecoin (the OG doggie coin).
Much of Hayes' analysis focuses on the Fed's recent adjustment to its quantitative tightening (QT) program. The Fed had previously set a reduction of $95 billion per month, then reduced it to $60 billion.
Hayes explains this as a covert form of quantitative easing, pumping an additional $35 billion per month into the dollar liquidity pool. “When you combine interest on reserve balances, Regional Reinvestment Plan payments, and interest payments on US Treasury debt, a lower QT increases the amount of stimulus provided to global asset markets each month,” he explains.
Hayes is also scrutinizing the actions of the US Treasury Department, especially Under Secretary Janet Yellen. It discusses the quarterly refinancing announcement (QRA), which outlines expected borrowing and cash balances for the coming quarters. For the second quarter of 2024, the Treasury expects to borrow $243 billion, a number that Hayes notes is $41 billion higher than previously forecast, due to lower-than-expected tax revenues.
This increase in the supply of Treasuries is expected to push up long-term interest rates, a situation that Yellen may counter with yield curve control measures — a scenario that could spur a significant rise in Bitcoin and cryptocurrency prices.
Hayes addresses the failure of Republic First Bank, highlighting the response of monetary authorities as a key indicator of systemic fragility. He criticizes the federal safety net that guarantees the recovery of all depositors, arguing that it hides deeper vulnerabilities within the American banking system and leads to a hidden form of money printing, where uninsured deposits are effectively guaranteed by the government. Hayes believes that this constitutes a fundamental imbalance that could lead to significant inflationary pressures.
Buy cryptocurrencies in May, and go away
Hayes is candid about his investment strategies in the current environment. He calls for buying now. “I'm buying Solana and Doggie tokens for momentum trades. For longer-term Shitcoin trades, I'm increasing my allocation in Pendle and will identify other tokens that are 'on sale'. I'll use the rest of May to increase my exposure. Then it's time to set it and forget it and wait for the market to appreciate the inflationary nature For recent US monetary policy announcements.
He concludes with a broad prediction that despite recent market volatility, the underlying liquidity conditions created by US monetary and fiscal policies will provide a floor for cryptocurrency prices, leading to a gradual upward trend. “While I don’t expect cryptocurrencies to fully realize the inflationary nature of recent US monetary announcements right away, I do expect prices to bottom out, break off, and begin a slow rise,” he said, noting his bullish outlook.
As for Bitcoin, Hayes expects the flagship cryptocurrency to reclaim the key level of $60,000 and then move in a range between $60,000 and $70,000 through August due to the annual summer lull.
At press time, Bitcoin was trading at $59,393.
Featured image by Onooki, chart from TradingView.com
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