Bitcoin (BTC) may be in for a significant price correction in the coming weeks, according to BitMEX co-founder Arthur Hayes. In a recent blog post, Hayes pointed to factors such as the reduction in US dollar liquidity and the potential approval of spot Bitcoin exchange-traded funds (ETFs) as catalysts for a possible downturn in the cryptocurrency market.
Reduced dollar liquidity threatens the crypto market
Hayes highlighted the ending of the Federal Reserve’s Bank Term Funding Program (BTFP) in March as a key factor that could trigger a “vicious washout” in the crypto market. The BTFP was introduced in March of 2023 to provide liquidity to banks and financial institutions, enabling them to meet their depositors’ needs.
According to Hayes, the termination of the BTFP could lead to a decrease in US dollar liquidity, which may negatively impact the cryptocurrency market. He stated, “I expect Bitcoin to experience a healthy 20% to 30% correction from whatever level it has attained by early March.” This correction, he believes, could be even more severe if US-listed spot Bitcoin ETFs have already begun trading.
Arthur Hayes expressed concerns that the approval and subsequent trading of spot Bitcoin ETFs in the US could exacerbate the sell-off triggered by reduced dollar liquidity. He explained, “Imagine if the anticipation of hundreds of billions of fiat flowing into these ETFs at a future date propels Bitcoin above $60,000 and close to its 2021 all-time high of $70,000. I could easily see a 30% to 40% correction due to a dollar liquidity rug pull.”
This sentiment is driven by the belief that a surge in demand for Bitcoin due to ETFs could lead to a speculative bubble, followed by a sharp correction when the market sentiment cools down.
Potential federal reserve intervention
In addition to the concerns regarding reduced dollar liquidity, Hayes suggested another banking crisis could force the Federal Reserve to ease monetary policy, which might aid in Bitcoin’s recovery. He explained, “The BTFP expires on March 12th, and the Fed rate decision is announced on March 20th.
There are six trading days between these two crucial decision points. If my forecast is correct, the market will bankrupt a few banks within that period, forcing the Fed to cut rates and announce the BTFP’s resumption.”
According to Hayes, Bitcoin’s resilience lies in its status as a neutral reserve hard currency that is not a liability to the banking system and is traded globally. He believes Bitcoin knows the Federal Reserve’s tendency to respond with liquidity injections during challenging economic times. As a result, he expects Bitcoin to rise sharply before and during the Fed’s eventual decision to restart quantitative easing.
Market reaction and uncertainty
The cryptocurrency market has historically been characterized by volatility and rapid price swings. Arthur Hayes’ predictions, while based on certain economic factors and policy decisions, should be taken with caution, as a wide range of factors can influence the market.
Investors and traders should consider diversifying their portfolios and implementing risk management strategies to mitigate potential losses in a market correction. The cryptocurrency market remains highly speculative and can be subject to sudden and unpredictable changes.
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