Hayes criticizes the Federal Reserve’s approach to inflation, suggesting that the institution prefers verbal intervention over concrete actions due to inflationary fears.
Factors Influencing Recent Decline in Bitcoin Price
The recent 20% dip in BTC prices, according to Hayes, might be just the tip of the iceberg, with a predicted 30% correction from the ETF approval high of $48,000, putting the support level between $30,000 to $35,000.
Two arguments were presented to explain the recent Bitcoin price decline. The first, citing outflows from the Grayscale Bitcoin Trust (GBTC), is dismissed by Hayes. He pointed out that when accounting for the inflows into newly listed spot Bitcoin Exchange-Traded Funds (ETFs), there is a net inflow of $820 million as of January 22nd.
However, Hayes proposes an alternative explanation for the slump, linking it to the potential non-renewal of the Bank Term Funding Program (BTFP). He argues that without this support, non-too-big-to-fail banks might face financial crises, leading to adverse consequences for the broader financial market.
According to Hayes, the impending decision on whether to renew the BTFP on March 12th could be a pivotal moment for Bitcoin. He contends that the Federal Reserve’s reluctance to cut rates to a level that benefits non-TBTF banks puts the financial system at risk.
The absence of government support through the BTFP, in Hayes’ view, could trigger a mini-financial crisis, forcing the Fed to take drastic measures like rate cuts, tapering of Quantitative Tightening (QT), or a resumption of Quantitative Easing (QE).
Hayes criticizes the Federal Reserve’s approach to inflation, suggesting that the institution prefers verbal intervention over concrete actions due to inflationary fears. Contrary to mainstream narratives, he asserts that inflation remains a notable concern for many Americans and can influence political outcomes.
Additionally, Hayes points out that the US presidential election race and Federal Reserve policy have played pivotal roles in shaping his bearish outlook. He paints a cynical picture of US politics, describing it as a circus where wealthy individuals influence elections by supporting their chosen candidates. He suggested that President Joe Biden’s strategy involves gratifying both the rich and the poor to secure votes.
Bitcoin as an Indicator and Investment Strategy
In his essay titled “Signposts,” Hayes predicted a Bitcoin price dip before the BTFP renewal decision on March 12th. However, the timing of the recent downturn has surprised him. Hayes believes that Bitcoin will find a local bottom between $30,000 and $35,000, offering an opportunity for investors to “bottom fish.”
Hayes backs his prediction by revealing that he purchased March 2024 $35,000 strike puts, anticipating a further decline in Bitcoin prices.
Arthur Hayes’ pessimistic short-term Bitcoin projection raises concerns about the whole financial landscape, implying that the crypto market may be a leading indicator of impending troubles for traditional finance. As the March 12th BTFP renewal decision approaches, market participants will closely follow Bitcoin price movements for potential indicators of the larger financial market’s future.