Arthur Hayes Foresees 30% Bitcoin Crash Amid ‘Vicious Washout.’ Here’s Why

While
crypto
investors
are
fixated
on
an
imminent

spot
bitcoin
exchange-traded
fund
(ETF)
decision
that
could
propel

BTC‘s
price
even
higher,
Arthur
Hayes,
the
chief
investment
officer
of
family
office
Maelstrom
and
the
ex-CEO
of
BitMex,
warned
about
a
potential
20-30%
plunge
in
the
next
few
months.

In
a
Friday

blog
post,
Hayes
outlined
looming
risks
for
U.S.
banks
and
markets
potentially
colliding
in
March
and
triggering
a
“liquidity
rug
pull”
event
akin
to
the

banking
crisis
last
March.

“I
am
preparing
for
a
vicious
washout
of
all
the
crypto
tourists
in
March
of
this
year,”
he
wrote.
“I
loaded
up
on
crypto
in
the
second
half
of
2023,
and
I
believe
now
until
April
is
a
no-trade
zone
in
terms
of
the
addition
of
risk.”

The
drawdown
of
the
Federal
Reserve’s
reverse
repo
program
(RRP),
where
qualified
banks
and
investment
firms
may
park
cash
and
earn
interest
on
it,
served
as
a
tailwind
for
risky
assets
through
last
year,
injecting
capital
into
markets
as
participants
took
out
cash
from
the
facility
and
invested.

However,
the
RRP
balance
is
quickly
declining,
dropping
to
$700
billion
from
a
record
high
of
$2.5
trillion
at
the
end
of
2022,
and
Hayes
is
projecting
it
to
reach
its
historical
average
of
$200
billion
by
around
March.

“When
this
number
gets
close
to
zero…,
the
market
will
wonder
what
is
next,”
he
said.
“Without
any
other
new
sources
of
dollar
liquidity,
bonds,
stocks,
and
I
believe
crypto
will
also
get
the
stick.”

Second,
a
crucial
Fed
facility
called
the

Bank
Term
Funding
Program
(BTFP)
that
helped
stave
off

last
year’s
regional
banking
crisis
is
set
to
expire
on
March
12,
with
the
potential
to
create
turbulence
in
the
banking
system.

The
BTFP
provided
banks
with
funding
to
fulfill
deposit
withdrawals
by
lending
them
money
at
the
notional
value
of
their
U.S.
government
bond
holdings,
at
much
better
conditions
than
selling
bonds
on
the
open
market
at
a
loss
due
to
the
Fed’s
aggressive
rate
hikes.

Hayes
expects
that
the
facility
won’t
be
extended
during
this
U.S.
presidential
election
year,
which
could
bankrupt
some
banks
who
sit
on
massive
unrealized
losses
on
their
bond
holdings.

“The
combination
of
a
lack
of
liquidity
gushing
from
the
RRP
and
the
lack
of
printed
money
to
cover
the
bond
losses
on
the
non-TBTF
too
big
to
fail
banks’
balance
sheets
will
decimate
the
financial
markets
globally,”
he
said.

As
the
market
rout
ensues,
Hayes
predicted
the
Fed
will
cut
rates
on
its
March
20
meeting
and
resume
the
BTFP
funding
line.

If
this
scenario
plays
out
as
Hayes
outlined,
bitcoin

(BTC)
will
correct
a
“healthy”
20%
to
30%
from
early
March
prices,
according
to
the
blog
post.
The
decline
could
be
as
much
as
40%
if
BTC
rallies
to
$60,000-$70,000
in
the
coming
weeks,
he
wrote.

“Bitcoin
initially
will
decline
sharply
with
the
broader
financial
markets
but
will
rebound
before
the
Fed
meeting,”
Hayes
said.
“That
is
because
bitcoin
is
the
only
neutral
reserve
hard
currency
that
is
not
a
liability
of
the
banking
system
and
is
traded
globally.”

Hayes
joined
a
roster
of
crypto
analysts
who
recently
forecasted
a
correction
for
crypto
markets.

CryptoQuant

said
that
a
spot-based
ETF
approval
would
be
a
“sell
the
news”
event
and
BTC
could
drop
to
$32,000,
while
K33
Research
suggested
reducing
exposure
as
the
market
became
overheated.
Bitcoin
is
currently
above
$43,000.

Matrixport
head
of
research
Markus
Thielen

warned
about
a
bitcoin
correction
based
on
technical
indicators
with
the
SEC
potentially
putting
off
ETF
decisions
due
to
shortcomings
in
the
filings.
The
report

may
have
contributed
to
a

near-10%
decline
in
bitcoin’s
price
earlier
this
week.