In a new rehearsalArthur Hayes, co-founder of cryptocurrency exchange BitMEX, has outlined a bullish future for bitcoin and altcoins. His analysis, focusing on the interplay between government liquidity operations and asset prices, suggests an imminent bull market in the cryptocurrency space, fueled by strategic fiscal maneuvers by the US Treasury.
When will the bitcoin bull rally resume?
Hayes compares the quality of water used to brew coffee to the liquidity of financial markets, showing that just as water quality is crucial to brewing a good cup of coffee, liquidity is essential to the health and movement of financial markets. Hayes noted that many investors underestimate the impact of liquidity and often focus narrowly on more visible factors, such as technological advances or regulatory changes.
Hayes explains the concept of “fiscal dominance,” a situation in which the government’s need to finance itself trumps all other economic considerations, including controlling inflation. He specifically criticizes the current policies of U.S. Treasury Secretary Janet Yellen, whose tactics, according to Hayes, focus on generating nominal economic growth regardless of inflationary outcomes.
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“During a period of fiscal dominance, the need to fund the government takes precedence over any concerns the central bank may have about inflation,” Hayes explains. He details how this shift affects liquidity, stating: “That means that bank credit, and by extension nominal GDP growth, must be kept high even if this results in inflation persistently above target.”
Drawing a direct connection between Treasury actions and cryptocurrency market movements, Hayes highlighted the correlation between Treasury bill (T-bill) issuance and bitcoin price movements. He noted that when the Treasury increases T-bill issuance, it effectively shifts liquidity from instruments like the Reverse Repurchase Program (RRP) to more active uses, which historically corresponds with increases in bitcoin prices.
“While the RRP (white) fell from its high, bitcoin (gold) moved away from the lows. As you can see, it’s a very close relationship. As money leaves the Fed’s balance sheet, it adds liquidity, which causes (…) So, taking Bad Gurl Yellen at her word, we know that $301 billion in Treasury bills will be issued between now and the end of the year. If this relationship holds, bitcoin will quickly recover from the drop caused by the strengthening yen. The next stop for bitcoin is $100,000,” Hayes speculates.
When is altcoin season?
Hayes therefore advises crypto traders to pay close attention to fiscal and monetary policies, especially actions by the U.S. Treasury, as they are often precursors to significant market moves. Tracking Treasury bill issuance and Treasury maneuvers can provide crypto investors with clues about upcoming changes in market liquidity and potential price movements, according to Hayes.
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Focusing on the broader cryptocurrency market, Hayes also discusses the possibility of an altcoin season, which he predicts will follow a rally in bitcoin and ethereum prices. “Shitcoins are higher beta cryptocurrencies than bitcoin. But during this cycle, bitcoin and now Ether have structural bids in the form of net inflows into US-listed exchange-traded funds (ETFs). While bitcoin and Ether have corrected since April, they escaped the carnage experienced in shitcoin markets.”
Commenting on the potential for an all-out altcoin season like in previous cycles, Hayes assures that the time will come. However, altcoin season will only return after bitcoin and Ether “decisively break above $70,000 and $4,000, respectively.” He adds that “the combination of a dollar-liquidity-inspired bitcoin and Ether rally towards the end of the year will create a solid foundation for the return of a sexy shitcoin evening.”
Interestingly, Hayes plans to capitalize on the US election. He expects the crypto bull rally to break out of its “sideways to down trajectory” in September. “The US election is due in early November. Yellen will be at her manipulative peak in October. There will be no better time for liquidity this year. Therefore, I will sell when there is strength. I will not liquidate my entire crypto portfolio, but will take profits on my more speculative momentum trades,” he revealed.
Hayes further anticipates a more substantial market adjustment following the US election and US debt ceiling resolutions: “Once the US debt ceiling charade is over, liquidity will pour out of the Treasury and possibly the Fed to get markets back on track. Then the bull market will really begin. $1 million in bitcoin remains my base case.”
At the time of writing, btc was trading at $58,783.
Featured image from YouTube, chart from TradingView.com
