In a recent essay, Arthur Hayes, the co-founder of crypto exchange BitMEX, has outlined a bullish future for Bitcoin and altcoins. His evaluation, focused on the interplay between government liquidity operations and asset prices, suggests a looming bull market within the crypto space, driven by strategic fiscal maneuvers by the US Treasury.
When Will The Bitcoin Bull Run Return?
Hayes compares the standard of water in brewing coffee to the liquidity in financial markets, illustrating that just as the standard of water is crucial for making a great cup of coffee, liquidity is important for the health and movement of economic markets. Hayes identified that many investors underestimate the impact of liquidity and sometimes focus narrowly on more visible aspects like technological advancements or regulatory changes.
Hayes explains the concept of “fiscal dominance,” a situation where the federal government’s must finance itself supersedes all other economic considerations, including the control of inflation. He specifically critiques the present policies under US Treasury Secretary Janet Yellen, whose tactics, in response to Hayes, give attention to generating nominal economic growth whatever the inflationary outcomes.
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“During a period of fiscal dominance, the need to fund the state overrides any concerns the central bank can have about inflation,” Hayes explains. He details how this shift impacts liquidity, stating, “Meaning bank credit and, by extension, nominal GDP growth should be sustained at high levels even when it ends in persistently higher than goal inflation.”
Drawing a direct connection between Treasury actions and crypto market movements, Hayes highlighted the correlation between the issuance of Treasury bills (T-bills) and Bitcoin price movements. He noted that when the Treasury increases T-bill issuance, it effectively shifts liquidity from instruments just like the Reverse Repo Program (RRP) into more lively uses, which historically corresponds with increases in Bitcoin prices.
“Because the RRP (white) fell from its high, Bitcoin (gold) pumped off the lows. As you possibly can see, it’s a really tight relationship. As money leaves the Fed’s balance sheet, it adds liquidity, which causes […] Due to this fact, taking Bad Gurl Yellen’s word, we all know that $301bn of T-bills might be net issued between now and year-end. If this relationship holds true, Bitcoin will quickly retrace the dump brought on by the yen strengthening. The subsequent stop for Bitcoin is $100,000″ Hayes speculates.
When Altcoin Season?
Due to this fact, Hayes advises crypto traders to pay close attention to fiscal and monetary policies, especially the actions of the US Treasury, as these are sometimes precursors to significant market movements. Monitoring T-bill issuance and Treasury maneuvers can provide crypto investors with clues about upcoming shifts in market liquidity and potential price movements, in response to Hayes.
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Shifting focus to the broader crypto market, Hayes also discusses the potential for an ‘alt szn’ or altcoin season, which he predicts will follow a rally in Bitcoin and Ethereum prices. “Shitcoins are higher beta Bitcoin crypto plays. But during this cycle, Bitcoin and now Ether have structural bids in the shape of net inflows into US-listed exchange-traded funds (ETF). While Bitcoin and Ether have corrected since April, they escaped the carnage experienced within the shitcoin markets.”
Commenting on the potential of a full blown altcoin season like in previous cycles, Hayes assures that the time will come. Nevertheless, altcoin season will only return after Bitcoin and Ether “decidedly break through $70,000 and $4,000, respectively.” He adds, “the mix of a dollar liquidity-inspired Bitcoin and Ether rally into year-end will create a powerful foundation for the return of an attractive shitcoin soiree.”
Interestingly, Hayes plans to capitalize on the US elections. He expects that the crypto bull run will exit its “sideways-to-downward trajectory” in September. “The US election occurs in early November. Yellen might be at peak manipulation in October. There might be no higher time for liquidity this 12 months. Due to this fact, I shall sell into strength. I won’t liquidate my entire crypto portfolio but take profits in my more speculative momentum trades,” he revealed.
Hayes further anticipates a more substantial market adjustment post US election and the US debt ceiling resolutions, “Once the US debt ceiling charade is over, liquidity will gush from the Treasury and possibly the Fed to get markets back heading in the right direction. Then, the bull market will begin for realz. $1 million Bitcoin remains to be my base case.”
At press time, BTC traded at $58,783.
Bitcoin price faces the 200-day EMA, 1-day chart | Source: BTCUSDT on TradingView.com
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