Arthur Hayes: Buying the Dip in Bitcoin Below $35,000, Continues to Accumulate Solana and WIF

On January 24th, Arthur Hayes, the founder of the

cryptocurrency

trading platform BitMEX, published a lengthy article on his blog expressing his views on the BTC price trend. The article includes two key points: 1) Arthur Hayes argues that the recent decline in Bitcoin is not attributable to outflows from the Grayscale Bitcoin Trust (GBTC), contrary to some opinions; 2) The cessation of the BTFP (Balance Sheet Tapering Program) will trigger a minor financial crisis, compelling the Federal Reserve to cease talks and take measures, including interest rate cuts, slowing down quantitative tightening (QT), and/or resuming money printing through quantitative easing (QE).

Here is the original text regarding Arthur Hayes's perspective：

Recent Bitcoin Plunge Not Attributed to Grayscale

Janet Yellen, the U.S. Treasury Secretary, and the befuddled Federal Reserve Chair Jerome Powell oscillate between decisive action and vague statements. When they act, it's best not to confront them, but when they're just chanting slogans, be cautious, as many market signals can lead you down a path destined for losses.

On November 1, 2023, the U.S. Treasury's Quarterly Refunding Announcement (QRA) included a statement that Janet Yellen would shift most borrowing to short-term Treasury bills with a maturity of less than a year. This prompted Money Market Funds (MMFs) to divest from the Federal Reserve's Reverse Repurchase Agreement (RRP) program and invest in higher-yielding government bonds. The outcome, detailed in my article “Bad Gurl,” provided liquidity injections, both past and present, nearing a total of $1 trillion once completed.

In mid-December 2023, during an FOMC press conference, Powell announced they were discussing interest rate cuts in 2024. This marked a dramatic shift from his statements two weeks prior, where he assured the market that the Fed would remain tight to ensure inflation wouldn't resurge. The market inferred that the Fed's first rate cut of this tightening cycle would happen in March this year. Subsequently, earlier this month, Dallas Fed President Logan threw a smoke bomb, suggesting that the pace of Quantitative Tightening (QT) would gradually slow down as RRP balances approach zero. The rationale is that the Fed doesn't want any issues with dollar liquidity when they stop printing money.

Let's review what is talk and what is actual action. Yellen converted departmental borrowing into government bonds, effectively injecting hundreds of billions of dollars into global financial markets. This is tangible money flowing in. Powell and other Fed officials talked about a big game regarding rate cuts and slowing down Quantitative Easing (QE) in the distant future. This talk didn't add any monetary stimulus measures. However, the market perceived actions and words as one and the same, rebounding after November 1 and continuing to rise throughout the month.

When I refer to the market, I mean the S&P 500 Index and the Nasdaq 100 Index, both reaching historic highs. But not everything is smooth sailing.

The real warning signal in the direction of U.S. dollar liquidity—Bitcoin—is sending warning signals. After the launch of U.S. spot ETFs, Bitcoin has dropped from its high of $48,000 to below $40,000. Consistent with Bitcoin's local peak, the 2-year U.S. Treasury yield hit a local low of 4.14% in mid-January and is currently rising.

The first argument for Bitcoin's recent sharp decline is the outflow of funds from the Grayscale Bitcoin Trust (GBTC), which is unfounded because when you net outflows from GBTC against the inflows of newly listed spot Bitcoin ETFs, the result is a net inflow of $82 billion as of January 22.

BTC Price Declines Ahead of BTFP Decision

The second argument, and also my standpoint, is that the Bitcoin market anticipates the suspension of the Bank Term Funding Program (BTFP). This event won't have a positive impact because the Federal Reserve has not lowered interest rates to levels that would push the 10-year Treasury yield to the 2% to 3% range.

At these levels, the bond portfolios of non-Too Big To Fail (TBTF) banks have returned to profitability, while there are currently substantial unrealized losses on their balance sheets. Before rates drop to the aforementioned levels, these banks cannot survive without support provided by the government through BTFP.

The prosperity in the financial markets has given Yellen and Powell a misguided confidence that the market won't let some non-TBTF banks go bankrupt once BTFP is halted. Therefore, they believe they can prevent the politically toxic BTFP and there won't be negative market reactions.

However, I think quite the opposite: the cessation of BTFP will trigger a minor financial crisis, forcing the Federal Reserve to stop the talk and Yellen to initiate rate cuts, QT reduction, and/or the resumption of quantitative easing (QE) through monetary stimulus.

The price movement of Bitcoin tells me I am right, and they are wrong. The Federal Reserve prefers to stimulate the market through speeches and The Wall Street Journal columns because they harbor extreme fears of inflation.

Contrary to what mainstream Western financial media tells you, inflation remains the issue facing most bankrupt Americans. Voters decide the presidency based on the economy, and now, President Joe Biden and his Democrats are destined to be defeated by redneck representatives like Trump and Republicans.

As I wrote in the “Signposts” article, I believe Bitcoin will decline before the BTFP update decision on March 12. I didn't expect it to happen so quickly, but I think Bitcoin will find a local bottom between $30,000 and $35,000. As SPX and NDX decline due to the small financial crisis in March, Bitcoin will rise because it will represent the Federal Reserve ultimately translating rate cuts and monetary printing rhetoric into action by pressing the “Brrrr” button.