Bitcoin has shown strong performance recently, reaching $64,000 at one point. However, Arthur Hayes, the founder of BitMEX, predicted in early January of this year that Bitcoin would drop 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 balance of the Federal Reserve’s Reverse Repurchase Program (RRP) approaches zero in early March (around $200 billion, a relatively small amount compared to the overall financial market), the market will need to find new sources of US dollar liquidity to maintain activity. If there are no other sources of liquidity after the RRP funds are exhausted, it could lead to a decline in the prices of 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 bonds previously repurchased from 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 show 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, he expects Yellen to change her stance and reinstate 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, leading to 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 between the expiration of the 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 that in early March, RRP will be exhausted, 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 even greater pullback if US-listed Bitcoin spot ETFs have started trading. To hedge against downside market risks, Hayes plans to purchase Bitcoin put options and closely monitor market trends from March 12 to 20 to decide when to close positions.
Daniel Yan, the co-founder of Matrixport, also commented on the post-$60,000 Bitcoin trend. On the 28th, 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 in Bitcoin shortly after the halving in April. Yan also points out that this pullback may start as early as March, as it is a relatively fragile month for the crypto market.
Source: Binance BTC Spot Price