Bitcoin Could ‘Slowly Drain’ Toward $50,000 Before Next Surge: Arthur Hayes

BitMEX is due for more sideways turmoil and some more bleeding before it shoots skyward later this month, said BitMEX co-founder Arthur Hayes.

In a recent post, the popular crypto essayist and macro-analyst admitted that his previous prediction that the Bitcoin bull market would “restart” in September was incorrect, but that his bullishness was “temporary.”

“I've changed my mind, but it doesn't change the position. I'm still tall in an invalid fashion,” he wrote on Tuesday.

Instead, Hayes simply delayed his expectations by a few weeks as he waited for the Federal Reserve and the U.S. Treasury to inject emergency liquidity into the market. He says that this amount of money can be reintroduced from the Treasury's general account – and from quantitative easing, which is expected to maintain stability in the Treasury market.

“I expect the intervention to begin at the end of September,” he added. “In the interim, Bitcoin will, at best, chop around these levels, and at worst, slowly decline to $50,000.”

Bitcoin initially rose to $64,000 after Federal Reserve Chairman Jerome Powell promised to begin cutting interest rates last month. Low interest rates mean cheap borrowing costs, which have mostly proven to be foolproof for rare assets and stocks like BTC.

In an article last week, Hayes described the pump as a “sugar high” as the Japanese yen begins to see relative strength, potentially killing “yen-bearing trades” bought by asset prices.

But Hayes soon realized there was another factor at play. The Fed's Reverse Repo Program (RRP) began to see more deposits following Powell's speech, with relatively high yields compared to US Treasury bills. According to Hayes' theory, a rising RRP “cleans” money, which cannot increase asset prices because it cannot be reused in the financial system.

“I expect T-Bill yields to be below RRP, assuming the Fed does not cut rates before the September meeting,” Hayes said.

In the longer term, Hayes expects a rate cut to raise the 10-year Treasury bond yield to 5%. As production neared this level last year, the Treasury felt it was necessary to pump more money into the market, so Hayes expects the government to repeat the same playbook and increase Bitcoin again.

Yellen believes that if the markets do not grow quickly, it will cost Kamala Harris the election in November.

“Given these circumstances and Yellen's loyalty to the Democratic Party's Manchurian candidate Kamala Harris, those red ends were able to move in the ‘free' market,” he said.