- BitMEX founder, Arthur Hayes, has warned that low US dollar liquidity and the unravelling of the Bitcoin ETF basis trades could see Bitcoin fall as low as US$80k (AU$123k) in the short term.
- Hayes believes following this drop we could see Bitcoin surge as high as US$250k (AU$384k) if the US Federal Reserve decides to increase money supply.
- Hayes highlighted that outflows from Bitcoin ETFs don’t signal lack of belief in Bitcoin, but shows large asset managers are exiting basis trades as they become less profitable.
BitMEX founder, Arthur Hayes, has said Bitcoin’s recent drop is related to low US dollar liquidity levels and is not reflective of the US government or institutional investors turning their back on the OG cryptocurrency.
“Bitcoin is the free-market weathervane of global fiat liquidity,” Hayes explained in his Monday blog post. “It trades on the expectation of future fiat supply.”
At the time of writing Bitcoin was trading US$92,250 (AU$142k) according to CoinGecko — up around 0.2% on the day — and looked like it might’ve found support at around US$90k (AU$139k). However, Hayes believes we could see Bitcoin fall as low as US$80 – $85k (AU$123k – $130k) in the short-term, driven by what he describes as an unfolding “credit event” which could be the catalyst for large-scale money printing.
The Bitcoin dive from $125,000 to the low $90,000s whilst the S&P 500 and Nasdaq 100 indices hover around all-time highs tells me that a credit event is brewing.
Arthur Hayes, BitMEX founder.The BitMEX founder added that if his view is correct, we may see a “10% to 20% correction in stonks coupled with a 10-year Treasury yield approaching 5%,” which he says will be enough to trigger the US Federal Reserve to start increasing the money supply.
If this scenario unfolds, Hayes thinks we could see Bitcoin surge to as high as US$250k (AU$384,000) by the end of this year.
If the broader risk markets implode, and the Fed and Treasury accelerate their money printing capers, then Bitcoin could zoom towards $200,000 or $250,000 at year end.
Arthur Hayes, BitMEX founder.Related: 148K BTC Dumped in Retail Panic as Analysts Brace for More Downside
Institutional Bitcoin Basis Trade Fuelled Rise and Is Contributing to Current Fall, Says Hayes
Hayes acknowledged that based on his analysis, US dollar liquidity had been falling since April, yet Bitcoin’s price continued to climb, seemingly undermining his central thesis. Hayes attributed this apparent contradiction to the large-scale buying of Bitcoin through ETFs, along with “liquidity-positive rhetoric from the Trump administration” — presumably referring to Trump’s near-constant hectoring of Fed Chair Jerome Powell to cut interest rates.
Now though, these same ETFs are seeing all-time high outflows. In total, Bitcoin ETFs globally saw over US$2 billion (AU$3b) in weekly outflows last week.
Hayes, though, doesn’t believe this signals a lack of belief in Bitcoin from fund managers and investors. Rather he thinks it’s simply the unwinding of Bitcoin ETF-based basis trades by large asset managers like Goldman Sachs.
Related: Harvard Supercharges Bitcoin Bet With 257% Surge in ETF Holdings
Hayes pointed out that the five largest holders of the largest spot Bitcoin ETF, BlackRock’s IBIT, are all large asset managers that aren’t long Bitcoin or true believers, and are not even really betting on Bitcoin’s price increasing. Instead they’re making a basis trade — which involves buying IBIT, shorting a Bitcoin futures contract, and then earning the spread between the two assets.
This strategy is capital efficient, Hayes explained, because “usually their broker allows them to post the ETF as collateral against their short futures position.”
When all these asset managers were maximising this strategy earlier this year, it contributed to Bitcoin’s rise and made a lot of retail investors think that institutional investors were Bitcoin converts, but that isn’t the case according to Hayes.
This creates the impression, to those who don’t understand the market microstructure, that there is massive interest from institutional investors for Bitcoin exposure when in reality they don’t give a f*ck about Bitcoin, they only play in our sandbox for a few extra points over Fed Funds.
Arthur Hayes, BitMEX founder.Changed conditions mean this basis trade is no longer working so well for these large asset managers and they’re all looking to exit these positions at the same time. Hayes wrote that this exiting of Bitcoin ETF basis trades is now being misinterpreted by many retail investors as signalling a loss of belief in Bitcoin from institutional investors, when in fact it simply reflects the relative decline in the profitability of this specific trading strategy.
“Now retail believes these same investors don’t like Bitcoin, creating a negative feedback loop that influences them to sell, which decreases the basis, finally causing more institutional investors to sell the ETF,” Hayes explained.
Credit: Source link
