Arthur Hayes believes Bitcoin could still reach $1 million this cycle

Arthur Hayes said that Bitcoin will not reach $1 million in 90 days.

However, former BitMEX CEO told Bankless Podcast host David Hoffman that he believes BTC could “absolutely” go to a million this cycle.

“Do I think Bitcoin will go to a million dollars in 90 days? No I don’t. Do I think Bitcoin will go to a million dollars in this cycle? Absolutely.”

Hayes clarified that “this cycle” is within the next two to three years.

Bitcoin to 1 million dollars?

Balaji Srinivasan hit the headlines this week for his bet that Bitcoin would reach $1 million by June 17. The former Coinbase CTO stated that hyperinflation, fueled by the Fed’s Bank Term Funding Program (BTFP,) would trigger the move.

The BTFP is an emergency lending initiative that offers financial institutions loans against US Treasury bonds, agency debt, mortgage-backed securities and other qualifying assets pledged as collateral. It was a response to bank failures, including the collapse of Silicon Valley Bank.

“The BTFP will provide an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell these securities in times of stress.”

Quantitative Easing (QE) refers to central banks buying assets, which have a knock-on effect of balance sheet expansion, in a low interest rate environment.

Bitcoin Magazine (BM) explained that BTFP is QE, except for crucial differences in the program targeting financial institutions specifically and no direct purchase of pledged assets, as the liquidity is via short-term loans. Additionally, although not mentioned in the BM article, it is worth pointing out that the US is currently in a (relatively) high interest rate environment.

However, the program is still a balance sheet expansion, which leads to excess liquidity in the banking system.

Hayes explains how BTC gets to a million

Giving his view on how the BFTP would affect crypto/risk assets, Hayes began by distinguishing insider money and outsider money.

Insider money is a liability on someone else’s balance sheet; it can be dollar, yen, euro, yuan, stocks and bonds. Crucially, what sets it apart is “you can’t use these things without interfacing with the fiat financial system and the people who are set up to trade in it,” he said.

By contrast, money is not outside of a liability on someone’s balance sheet; it can be gold, real estate and Bitcoin. Outside money is advantageous over inside money because the banking system does not affect it.

“The banking system breaks, money outside still works. You can still live in your house, you can still walk around with a gold bar, you can still use the Bitcoin blockchain.”

Hayes said you want money outside when the Fed props up the entire banking system, adding that banks (which have BFTP-eligible assets) cannot go bankrupt.

Under this setup, the money supply expands infinitely at some point, resulting in price increases for external currencies like Bitcoin.

When?

As for why Bitcoin won’t go to $1 million soon, Hayes said this program guarantees the return of depositors’ money. It is not an inflation driver if depositors leave their money in the bank.

“They’re not lending any of that money out, so there’s no credit creation going on. I’m just guaranteeing losses. So for now, it’s all dead money.”

But as soon as the Fed cuts interest rates and goes all the way down, like being forced “into a nasty recession,” the system’s liquidity is unlocked. Combined with easier borrowing, the pivot will trigger a surge in asset prices, sending Bitcoin on its way to $1 million.

Hayes expects the Fed to cut interest rates “in the near future.” But he still expects a bumpy road to $1 million, with drops along the way.