Bitcoin’s recent trend has been quite strong, reaching as high as $64,000. However, BitMEX founder Arthur Hayes predicted in early January that Bitcoin would fall 2-30% in March. Here are the specific reasons he sees a bearish market:
1. RRP and Market Liquidity: Hayes predicts that if the US Federal Reserve’s RRP balance drops to “near zero” in early March (around $200 billion, a relatively small amount compared to the overall financial market size), the market will need to find new sources of USD liquidity to sustain activity. If there are no other liquidity sources after RRP funds are depleted, it could cause various asset prices, including bonds, stocks, and even cryptocurrencies, to decline.
2. Impact of BTFP Renewal: Hayes states that when the Bank Term Funding Facility (BTFP) ends on March 12, banks participating in the program will need to find cash to exchange for the bonds they previously engaged in reverse repos with the Federal Reserve. He believes that Treasury Secretary Yellen may initially choose not to renew the BTFP in 2024, as it would demonstrate confidence in the US banking system. However, if some non-Too Big To Fail (non-TBTF) banks are forced into receivership due to lack of capital, Hayes expects Yellen to change her stance and restart the BTFP. Hayes believes that when RRP liquidity decreases and the Federal Reserve does not promptly print money to replenish the losses of non-TBTF banks, it will have a significant impact on global financial markets. In this situation, the market will experience short-term pain, causing the value of all assets, including cryptocurrencies, to decline.
3. Federal Open Market Committee (FOMC) Meeting in March: Hayes emphasizes the importance of the FOMC meeting in March. He predicts that bankruptcy situations may occur between the expiration of the BTFP on March 12 and the Federal Reserve’s interest rate decision on the 20th, forcing the Federal Reserve to announce interest rate cuts and resume the BTFP. Therefore, Bitcoin and the broader financial market may experience a decline before the March FOMC meeting.
4. Bitcoin’s 20-30% Pullback in Early March: Based on the above, Hayes expects that in early March, RRP will be depleted, BTFP will be discontinued on March 12 but expected to resume on the 20th, and the Federal Reserve may cut interest rates. This could lead to a 20-30% price pullback in Bitcoin in early March, with potentially larger declines if US-listed Bitcoin spot ETFs have started trading. To hedge against downside risks in the market, Hayes plans to buy Bitcoin put options and closely monitor market trends between March 12 and 20 to determine when to close his positions.
Matrixport founder Daniel Yan also believes that Bitcoin may experience a healthy 15% correction in April, shortly after the Bitcoin halving. He points out that the correction may begin as early as March, as it is a relatively fragile month for the crypto market.
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