As the decision on Bitcoin exchange-traded funds (ETFs) looms, prominent figures in the industry are adopting a cautious stance. BitMex founder Arthur Hayes has predicted a 20-30% drop in Bitcoin value in March, following a possible approval of a Bitcoin ETF. He also suggests that the crypto market could face a significant correction.
Hayes’ prediction is based on the interaction of three key factors: the Reverse Repo Program (RRP) balance, the Bank Term Funding Program (BTFP), and the Federal Reserve’s rate cut. The RRP, a short-term lending facility run by the Fed, is expected to drop to $200 billion by early March. This decline, along with the absence of alternative liquidity sources, could trigger downturns in the bond market, stocks, and cryptocurrencies.
The second risk factor is the BTFP, an emergency lending initiative launched by the Fed in March 2023 in response to concerns about financial stability during the banking crisis of the previous year. The program, which offers loans of up to one year to eligible institutions secured by high-quality collateral, is set to expire on March 12. Hayes warns of a potential cash shortfall if banks are unable to return the funds. The Fed’s data shows that BTFP lending reached a record high of $141 billion in the week through January 3.
Hayes suggests that some non-Too Big To Fail (non-TBTF) banks could face liquidity crunches, potentially pushing them towards insolvency. This could trigger a domino effect of bank failures. However, with 2024 being an election year and public sentiment against bank bailouts, US Treasury Secretary Janet Yellen might be hesitant to renew the BTFP. If sufficiently large non-TBTF banks face severe financial difficulties, Yellen might consider reintroducing the BTFP.
Hayes anticipates a series of bank failures and financial strains driven by the interplay of RRP, BTFP, and interest rates. He expects the Fed to respond with rate cuts and a potential BTFP renewal. He predicts a short-term Bitcoin correction by early March, which could be more severe if spot Bitcoin ETFs are approved.
Despite these predictions, Hayes remains optimistic about Bitcoin in the long term. He believes that Bitcoin will initially decline sharply with the broader financial markets but will rebound before the Fed meeting. This is because Bitcoin is the only neutral reserve hard currency that is not a liability of the banking system and is traded globally. Bitcoin is currently trading at around $43,500, down 1.4% in the last 24 hours.
This News Article was automatically generated by Bob the Bot (AI)
| Information | Details |
|---|---|
| Geography | North America |
| Countries | 🇺🇸 |
| Sentiment | negative |
| Relevance Score | 1 |
| People | Janet Yellen, Arthur Hayes |
| Companies | BitMex, Bank Term Funding Program (BTFP), Federal Reserve |
| Currencies | Bitcoin, US Dollar |
| Securities | None |
