Arthur Hayes Attributes Bitcoin’s Decline to Liquidity Shortage

The spread between reverse repo operations o/n and the yield on four-week US Treasury bills at ~0.9% limits the liquidity available for purchasing risk assets like Bitcoin, according to former BitMEX CEO Arthur Hayes.

My theory on why Fed rate cuts aren’t going to plan.

Since JAYPOW annc Sept rate cut at J-Hole, $BTC down 10%, y? I thot rate cuts were good for risk assets.

RRP pays 5.3% no T-bill under 1-yr maturity pays more. MMF will move money from T-bill -> RRP which is $ liq -ve.

Since…

— Arthur Hayes (@CryptoHayes) September 2, 2024

The expert noted that since Federal Reserve Chairman Jerome Powell announced a monetary policy easing in September, Bitcoin has lost 10% of its value.

Hayes attributed the negative trend to money market funds potentially shifting capital from short-term US Treasury bills (4.38%) to reverse repo operations with the Federal Reserve (5.3%), providing a risk-free yield of 0.92%.

Following Powell’s speech, the volume of the latter increased by $120 billion. According to the former BitMEX CEO, this situation will persist as long as T-Bill rates remain lower than those for RRP.

According to futures, the probability of a 25 basis point rate cut by the Fed at the September 18 meeting is 69%, and 31% for a 50 basis point cut.

On the Polymarket prediction platform, these odds are estimated at 77% and 20%, respectively. The volume of bets reached $10.9 million.

Between August 25 and 31, clients withdrew $305 million from crypto funds. CoinShares analysts attributed the negative trend to US macroeconomic data, which reduced the likelihood of a 50 basis point Fed rate cut.