BitMEX co-founder and macro market analyst Arthur Hayes is injecting his dry powder into bitcoin earlier than previously planned, according to his latest blog post. Hayes argued that despite his concerns about a future crypto market pullback, there is still an opportunity to profit from the ongoing risk asset rally that began last month.
The rally is not over yet
Hayes began his “Be Present” post by referring to his previous post on Bitcoin’s famous January rally, when the asset rose above $20,000 for the first time since the FTX crash.
At the time, risk assets rose across the board after strong signs of deflation in December. This signaled to markets that the Federal Reserve’s mission to fight inflation may soon be over, allowing it to return to looser monetary policy.
However, Hayes warned that there is a decent chance that the rally was a bull trap and that a pullback back to Bitcoin’s $16,000 lows is still a possibility. Thus, the analyst kept his free capital in market funds and short-term US Treasury bills, “missing out” on Bitcoin’s 50% gain since that time.
However, the co-founder has now reconsidered, believing that the Bitcoin rally is not over yet – for two reasons. First, the Treasury General Account (TGA) is likely to pour another $500 billion into the economy soon due to the country’s rapidly approaching debt limit – thus boosting liquidity and supporting risky assets.
Secondly, the speech of Federal Reserve Chairman Jerome Powell after the FOMC meeting last week again caused a bullish mood in the market. This may inspire others, including Hayes, to move money out of money market funds and long-term risk assets. Thus, the RRP balance will be reduced, systemic liquidity will increase, and risky assets will receive additional benefits.
“There is currently just over $2 trillion parked in RRP, which is about $200 billion less than the previous year if we exclude the window dressing effect at the end of 2021,” Hayes explained.
The usual reason for Hayes’ optimism also holds true: central banks around the world are returning to “business as usual” printing money in their economies and increasing spending. He, in particular, criticized the Bank of Japan for the “absolute determination to ensure hyperinflation”, which takes place in a country where inflation recently reached a 41-year high.
What will happen next
While there may be good prospects for the cryptocurrency in the short term, Hayes warned that markets could be in trouble by the middle of the year once TGA runs out of funds. For now, he predicts a “political circus” after which Congress will eventually raise the debt ceiling, inciting the US Treasury to issue bonds to finance the federal budget deficit. Combined with the Federal Reserve’s ongoing plans to float $100 billion worth of US Treasury bonds on the market, each event will drain significant liquidity from the market.