What Arthur Hayes Got Wrong About His Latest Market Forecast

BitMEX co-founder and macro-market analyst Arthur Hayes is deploying his dry powder into Bitcoin sooner than previously planned, according to his latest blog post. 

Hayes argued that despite his fears of a future crypto market retracement, there is still an opportunity to profit now from the ongoing risk asset rally that began last month. 

The Rally Isn’t Over

Hayes began his post, titled “Be Present”, by alluding to his previous post covering Bitcoin’s celebrated rally in January, taking the asset back above $20,000 for the first time since FTX collapsed. 

At the time, risk assets rallied across the board following strong signs of disinflation in December. This signaled to markets that the Federal Reserve’s mission to combat inflation may soon be ending, allowing it to pivot back into a more dovish monetary policy. 

However, Hayes warned that there was a decent likelihood that the rally was a bull trap and that a retracement back to Bitcoin’s $16,000 lows was still in the cards. As such, the analyst has kept his spare capital in market funds and short-dated U.S. Treasury bills, “missing out” on Bitcoin’s 50% gains since that time. 

However, the co-founder has now reconsidered, believing that Bitcoin’s rally is not yet over – for two reasons. Firstly, the Treasury General Account (TGA) is likely to spend another $500 billion into the economy soon due to the country’s fast-approaching debt limit – thus boosting liquidity, and propping up risk assets. 

Secondly, Federal Reserve Chairman Jerome Powell’s speech after FOMC last week has the market feeling bullish again. This may inspire others – including Hayes – to remove money from money market funds and long-risk assets. Thus, RRP balance will be lowered, systemic liquidity will increase, and risk assets will benefit further.

“At present, there is slightly more than $2 trillion parked in RRPs, which is down approximately $200 billion year-to-date when you remove the 2021 end-of-year window-dressing effect,” explained Hayes.

Hayes’s usual reason for bullishness also still applies: central banks across the world are returning to “business as usual” – printing money into their economy and driving up costs. He called out the Bank of Japan in particular for being “absolutely determined to ensure hyperinflation,” takes place in the country, where inflation recently tapped a 41-year high.  

What Comes Next

Though the short term may have good things in store for crypto, Hayes warned that markets may be in trouble by mid-year, once the TGA is exhausted of funds. At this point, he predicts a “political circus” after which congress ultimately raises the debt ceiling, inciting the US Treasury to issue bonds to fund the Federal Deficit. 

Combined with the Federal Reserve’s ongoing plans to dump $100 billion of US Treasuries onto the market, each event will drain significant liquidity from the market. 

“I would say this future is negative at the margin for risky assets,” advised Hayes. “That means that, if you are planning to buy risky assets now, you need to be prepared to watch the market very closely and be ready to pound the sell button as soon as the TGA has been completely drawn down to zero but before the debt ceiling is raised.”