Bitcoin has shown a strong trend recently and reached $64,000 at one point. However, Arthur Hayes, the founder of BitMEX, predicted in early January this year that Bitcoin would fall by 2-30% in March. Here are the specific reasons he sees a bearish market:
1. RRP and Market Liquidity: Hayes predicts that if the Federal Reserve’s RRP (reverse repo program) balance drops to “close to 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. However, if there are no other liquidity sources after the depletion of RRP funds, it could lead to a decline in various asset prices, including bonds, stocks, and even cryptocurrencies. RRP is an important tool for central banks. When there is excess cash in the market, central banks can withdraw cash from the market. Conversely, when there is a need to increase market liquidity, central banks can buy securities and inject cash into the market.
2. Impact of BTFP Contract Renewal: Hayes states that when the Bank Term Funding Facility (BTFP) expires on March 12th, participating banks will need to find cash to exchange for the bonds they previously conducted reverse repo transactions with the Federal Reserve. He believes that since 2024 is an election year in the United States, Treasury Secretary Yellen may initially choose not to renew the BTFP to demonstrate confidence in the U.S. banking system. However, if some non-Too Big To Fail (non-TBTF) banks are forced into receivership due to insufficient 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 the global financial market. In this case, the market will experience short-term pain, resulting in a decline in the value of all assets, including cryptocurrencies.
3. March Federal Open Market Committee (FOMC) Meeting: Hayes emphasizes the importance of the March FOMC meeting. He predicts that there may be bank bankruptcies between the expiration of the Bank Term Funding Facility (BTFP) on March 12th and the Federal Reserve’s rate decision on the 20th, forcing the Federal Reserve to announce 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% Correction in Early March: Based on the above, Hayes expects RRP to be depleted in early March, BTFP to be canceled on March 12th but expected to resume on the 20th, and a possible interest rate cut by the Federal Reserve. This could lead to a 20-30% price correction for Bitcoin in early March, with potentially greater correction if a U.S.-listed Bitcoin spot ETF has started trading. To hedge against downside risks, Hayes plans to buy Bitcoin put options and closely monitor market trends from March 12th to 20th to determine when to close his positions.
Daniel Yan, the co-founder of Matrixport, also predicts a 15% healthy correction for Bitcoin in April, shortly after the halving event. He believes that the correction may start as early as March, as it is considered a relatively fragile month for the crypto market.
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