- Bitcoin is acting as a forward-looking barometer for traditional market health, notably within the banking system, according to Arthur Hayes.
- Hayes predicts a market bottom of $30,000 to $35,000 for Bitcoin following the expiry of a little-known lending programme come March.
Bitcoin’s decline following the launch of US spot exchange-traded funds is a signal of what’s to come for US financial markets, BitMEX co-founder Arthur Hayes wrote in a blog post on Wednesday.
The asset is down 6% this week to around the $40,000 mark after clawing back losses from Tuesday’s trading session that saw it reach a low of $38,500.
That contrasts with fresh all-time highs for the S&P 500 and Nasdaq 100 this week.
Reasons behind the move include Grayscale’s nearly $4 billion in outflows as investors seek out lower fees elsewhere, shifting dynamics as the ETF offers new alternatives to bet on the crypto market.
Hayes challenges this narrative.
According to him, this view overlooks the net inflow of funds into newly listed spot Bitcoin ETFs, which offsets the GBTC outflows.
On Tuesday, roughly $515 million was withdrawn from GBTC, adding to the $640 million taken out on Monday.
Since January 12, the total amount withdrawn from GBTC has reached over $3.96 billion, DL News previously reported.
On Tuesday, the combined withdrawals from all 10 spot Bitcoin ETFs amounted to $106 million. It’s believed these ETFs have collectively seen net inflows of around $983 million since launch.
A strain on smaller banks?
Instead, Hayes points to the uncertainty surrounding the renewal of the US Bank Term Funding Program as a key factor influencing Bitcoin.
The BTFP, a central bank initiative, plays a critical role in providing stability and liquidity to financial institutions, particularly during financial turmoil, by offering favourable loan terms for short-term funding.
The Federal Reserve this week said the funding programme, created in the wake of the collapse of Silicon Valley Bank last year, will end in March.
Until then, the Fed will also immediately raise the interest rate on new loans from the programme.
Hayes speculates that the non-renewal of this programme could place a strain on smaller banks, possibly leading the Fed to lower interest rates or resume quantitative easing.
As of December 31, the total outstanding amount of all advances under the BTFP was about $129 billion, according to the Fed.
The total value of the collateral pledged to secure those advances was about $194 billion, which includes credit protection to the reserve banks from the Department of the Treasury.
While the Fed doesn’t directly set these bond yields, its policies can influence them.
Higher yields on government bonds can lead to an overall increase in borrowing costs, which can particularly impact smaller banks.
These banks may find it more expensive to borrow money, affecting their operations and financial health.
The hope is that if the Fed reduces interest rates, it might help in bringing down these bond yields to a more manageable level, ideally between 2% and 3%, easing the financial pressure on smaller banks, Hayes wrote.
He further suggests that the traditional market’s record run may be giving a false sense of security to policymakers, adding further justification to end BTFP.
Hayes predicts, “Bitcoin is likely to dip before the BTFP renewal decision on March 12, potentially finding a local bottom between $30,000 and $35,000.”
As for the S&P 500 and Nasdaq 100?
Hayes wrote they’re likely to dump come March, with Bitcoin bouncing back following a Fed rate cut and more money being pumped into the economy.
Crypto market movers
- Bitcoin is down 0.31% in the last 24 hours as of 3pm GMT, trading at $39,953.
- Ethereum fell 1.13% in the same period, now at $2,208.
- Avalanche and Solana are down 2% and up 1.08%, respectively.
What we’re reading
- Hong Kong regulators plan to tokenise securities even as they fight crypto crime wave — DL News
- JPMorgan Downgrades Coinbase Stock To ‘Underweight’ Amidst Falling Crypto Prices — Milk Road
- How Polychain Capital Avoided the Crypto Blow-Ups of 2022 — Unchained
- Mt. Gox Inches Closer To Bitcoin Repayments: Report — Milk Road
- Solana rolls out 13 new token extensions in bid to lure finance institutions onchain — DL News
Tom Carreras is a markets correspondent at DL News. Got a tip? Reach out at tcarreras@dlnews.com
Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.
