Bitcoin’s recent performance has been quite strong, reaching as high as $64,000. However, BitMEX founder Arthur Hayes predicted in early January that Bitcoin would drop 2-30% in March. Here are his specific reasons for the bearish market:
1. RRP and market liquidity:
Hayes predicts that if the Federal Reserve’s Reverse Repurchase (RRP) program 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 US dollar liquidity to sustain activity. However, if there are no other liquidity sources after the RRP funds are depleted, it could lead to price drops in various assets, including bonds, stocks, and even cryptocurrencies. RRP is an important tool for central banks. When there is an excess of 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 renewal:
Hayes states that when the Bank Term Funding Facility (BTFP) expires on March 12, participating banks will need to find cash to exchange for the bonds they previously conducted reverse repurchase agreements with the Federal Reserve. He believes that as 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 US 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 print money in time to replenish the losses of non-TBTF banks, it will have a significant impact on the global financial market. In this scenario, the market will experience short-term pain, leading to a decrease 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 between the expiration of the Bank Term Funding Facility (BTFP) on March 12 and the Federal Reserve’s interest rate decision on the 20th, there may be bank bankruptcies, 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 to experience a 20-30% pullback in early March:
Based on the above, Hayes expects RRP to be depleted in early March, the BTFP to be canceled on March 12, but expected to resume on the 20th, and the Federal Reserve possibly cutting interest rates. This could result in a 20-30% price pullback for Bitcoin in early March, and if the US-listed Bitcoin spot ETF has started trading, the pullback could be even greater. To hedge against downside market risks, Hayes plans to purchase Bitcoin put options and closely monitor market trends between March 12 and 20 to determine when to close the positions.
Additionally, Daniel Yan, co-founder of Matrixport, also expressed his view on Bitcoin’s trend after breaking $60,000. He stated that the current market sentiment has reached a level where caution should be exercised, and he believes that there will be a healthy 15% pullback for Bitcoin shortly after the halving in April. Yan also pointed out that this pullback is likely to start in March, as it is a relatively fragile month for the crypto market.
(Source: Binance BTC Spot Price)