Crypto Capitalist Arthur Hayes Says Fed Could Trigger Bitcoin (BTC) Rally Despite Hawkish Stance – Here’s How
A crypto exchange’s former CEO weighs in on the state of the economy after the Federal Reserve recently announced it doesn’t plan to cut interest rates anytime soon.
In a series of tweets, BitMEX co-founder Arthur Hayes hypotheses how the Fed can be able to reduce assets and liabilities on the balance sheet while driving the stock market higher.
“Let’s play a little game called ‘Hide these treasures.’
The rules:
Fed reduces its balance sheet, dollar liquidity negative.
The US Treasury issues bonds to pay for large and increasing fiscal spending, dollar liquidity negative.
But we want stems to pump, what are we going to do?”
Hayes says it is unlikely that foreign investors or the Fed itself will buy the US Treasuries it believes will be used to send out another round of stimulus checks before the upcoming midterm elections. He thinking that the banks could buy the treasuries and then profit from the leverage, which would cause the shares to rise.
“What if the US banks could buy government bonds, then send them to the Fed in exchange for dollars?
Then the banks take these dollars and leverage them through the financial markets. Net profit, more liquidity in dollars, stonks pump! Yippee.”
The crypto veteran add that while the banks and the Fed both may not want to buy bonds directly because of balance sheet obligations, together they can use The Fed’s standing repo facility (SRF) policy, which allows the Fed to buy and sell securities overnight, to achieve common goals.
“Every night the Fed takes government bonds from the banks and gives them fresh dollars.
Banks are not hit by capital costs, and get very cheap dollar liquidity that can be leveraged in the financial economy… [then] sprinkles pump.”
Hayes says The New York Fed will do an SRF-related “test run” in September that has the capacity to handle $500 billion, when add,
“Will the Fed activate it? I don’t know. But we should keep an eye on it, so I added it to my US Dollar Liquidity Index.
The SRF is a great way to soak up Treasury issuance required for pre-election stimulus.”
The crypto entrepreneur ends his tweetstorm with suggests that instead of worrying about interest rates, people need to track how well quantitative tightening is actually draining liquidity from the Fed’s balance sheet.
Hayes thinking whether or not the Fed’s gambit is successful will determine whether Bitcoin (BTC) rallies or continues to fall.
“Dollar Liquidity Figures Rise, Stonks and BTC Pump.
Dollar liquidity numbers go down, stonks and BTC dump.
You might as well throw away all the useless financial textbooks that talk about income and other nonsense.”
At the time of writing, Bitcoin is up 1.57% on the day and valued at $20,145.
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Featured image: Shutterstock/Amin Zeinoddini/Sensvector
