BitMEX co-founder Arthur Hayes predicts a decline in the crypto market following the Bitcoin halving due to the Federal Reserve and Treasury's "bag of tricks," which include tighter dollar liquidity, Quantitative Tightening, and a yet-to-be-used Treasury General Account. Hayes believes these factors will exacerbate the current sell-off of crypto assets.
Bitcoin Price Poised for Plunge Amid Halving, Fed and Treasury 'Bag of Tricks', Warns BitMEX Co-founder
April 8, 2022 - As the highly anticipated Bitcoin halving event looms on the horizon, BitMEX co-founder Arthur Hayes has issued a stark warning, predicting a significant downturn in the crypto market in the coming weeks. Hayes, known for his astute analysis and provocative commentary, attributes the impending slump to a combination of factors, including the halving itself, tighter dollar liquidity, and the implementation of the Federal Reserve and Treasury's so-called "bag of tricks."
In a comprehensive blog post published on April 8, Hayes argues that the market's prevailing narrative of a price pump following the halving is misguided, as history has repeatedly demonstrated that when most market participants anticipate a particular outcome, the opposite often occurs. He emphasizes that the halving coincides with a period of unusually tight dollar liquidity, exacerbated by the Fed's Quantitative Tightening (QT) policy and the government's yet-to-be-used General Account (TGA).
Hayes contends that these factors will conspire to depress crypto prices around the time of the halving. "That is why I believe Bitcoin and crypto prices in general will slump around the halving [...] It will add propellant to a raging firesale of crypto assets," he writes. However, Hayes acknowledges the possibility that the market may defy his bearish predictions, stating, "Could the market defy my bearish inclinations and continue higher? Fuck yeah," and professing his unwavering long-term bullishness on crypto.
Hayes further outlines the precarious period for risky assets that he anticipates during the second half of April. In addition to the aforementioned liquidity tightening measures, U.S. tax payments will further drain liquidity, while the Fed is expected to reduce the pace of money supply tightening and the Treasury is likely to release additional liquidity into the system following its May 1 meeting.
Hayes believes that this confluence of events will create a challenging environment for crypto assets, prompting him to "abstain from trading until May." He emphasizes that if his liquidity scenarios materialize, it would bolster his confidence to invest aggressively in undervalued assets. "If I miss a few percentage points of gains but definitely avoid losses for my portfolio and lifestyle, that is an acceptable outcome," he concludes.
Despite Hayes' cautionary outlook, Bitcoin has enjoyed a strong year-to-date performance, surging over 61% from around $42,200 to trade at $71,170. The market sentiment, as measured by the Crypto Fear & Greed Index, remains in the "Greed" zone, with a score of 80 on April 9, indicating extreme investor optimism.
However, Hayes' analysis serves as a timely reminder that market sentiment can shift rapidly, especially in the volatile crypto space. As the halving and other macroeconomic factors converge, investors are advised to exercise prudence and carefully consider their investment strategies.
