In his latest essay, Arthur Hayes, the founder of BitMEX, articulates a contrarian perspective on the recent downturn in Bitcoin’s price, refuting the mainstream narrative that attributes the decline to outflows from the Grayscale Bitcoin Trust (GBTC). Instead, Hayes points to macroeconomic maneuvers and monetary policy shifts as the real drivers behind Bitcoin’s volatility.
Monetary Policy And Market Reactions
Hayes kickstarts his analysis by shedding light on the US Treasury’s recent strategic shift in borrowing, a decision announced by Janet Yellen on November 1. This pivot towards Treasury bills (T-bills) has triggered a substantial liquidity injection, compelling money market funds to reallocate their investments from the Fed’s Reverse Repo Program (RRP) to these T-bills, offering higher yields.
Hayes articulates the significance of this move, stating, “Yellen acted by shifting her department’s borrowing to T-bills, thus adding hundreds of billions of dollars’ worth of liquidity so far.” However, he contrasts this tangible financial maneuver with the Federal Reserve’s mere rhetoric about future rate cuts and the tapering of quantitative tightening (QT), pointing out that these discussions have not translated into actual monetary stimulus.
While the traditional financial markets, particularly the S&P 500 and the Nasdaq 100, responded positively to these developments, Hayes argues that Bitcoin’s recent price trajectory serves as a more accurate barometer of the underlying economic currents. He remarks, “The real smoke alarm for the direction of dollar liquidity, Bitcoin, is throwing a cautionary sign.”
He notes the cryptocurrency’s decline from its peak and correlates it with the fluctuations in the yield of the 2-year US Treasury, suggesting a deeper economic interplay at work. “Coinciding with Bitcoin’s local high, the 2-year US Treasury yield hit a local low of 4.14% in mid-January and is now marching upwards,” Hayes remarked.
Dissecting True Reasons Behind The Bitcoin Dip
Addressing the narrative surrounding GBTC, Hayes emphatically dismisses the notion that outflows from GBTC are the primary catalyst for Bitcoin’s price movements. He clarifies, “The argument for Bitcoin’s recent dump is the outflows from the Grayscale Bitcoin Trust (GBTC). That argument is bogus because when you net the outflows from GBTC against the inflows into the newly listed spot Bitcoin ETFs, the result…
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