Arthur Hayes: Buy Bitcoin if this happens

Arthur Hayes is Chief Investment officer at Maelstrom, co-founder and former CEO of BitMEX. He has recently published an essay entitled “The Ugly,” He argues in the article that Bitcoin is likely to experience a significant near-term drop before rising ultimately to unheard of highs. Hayes, in his usual bluntness presents two scenarios for when to purchase Bitcoin.

What to do if this Happens? Buy bitcoin

Hayes’ essay He begins with a story about a sudden change in his feelings that surprised him. Hayes compares financial analysis with backcountry skiing in a dormant volcanic area. He recalls that the slightest hint of danger forced him to stop, reassess and reconsider. The same unease is expressed by Hayes about the current economic conditions. This intuition was last experienced in late 2021 before cryptocurrency markets fell from record highs.

“Subtle movements between central bank balance sheet levels, the rate of banking credit expansion, the relationship between the US 10-yr treasury/stocks/Bitcoin prices, and the insane TRUMP memecoin price action produced a pit in my stomach,” He writes that he believes the signals are not a sign of a market in danger, but rather a warning to be prepared for the downturns expected between 2022-2023. He clarifies that the broader bull cycle He believes that Bitcoin will drop somewhere between $70,000 and $75,000 before a sharp rise to $250,000 at the end of this year.

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This range is described by him as plausible, given the fact that equity and Treasury markets are, according to his words, “deeply intertwined”. “filthy fiat” The environment is still battling with rising rates and inflationary remnants. Hayes explains that Maelstrom is his investment company and it remains net-long while raising its USDe stablecoins holdings. This will allow the firm to purchase Bitcoin should prices fall below $75,000

According to him, reducing risk on the short-term allows him preserve capital which can be used later when there is a real market liquidation. A 30% correction is a real possibility for him, but he also acknowledges that bullish momentum may continue. “if Bitcoin trades through $110,000 on strong volume with an expanding perp open interest, then I’ll throw in the towel and buy back risk higher,” Specifically, he is writing about the second of his two scenarios.

In attempting to decipher why a temporary pullback might happen, Hayes asserts that major central banks—the Federal Reserve in the United States, the People’s Bank of China, and the Bank of Japan—are either curbing money creation or, in some cases, outright raising the price of money by permitting yields to rise. He thinks that the shifts in policy could be enough to choke off speculative money that has boosted both stocks and cryptocurrency prices over recent months.

In his analysis of the US, the author focuses on the interlocking perspectives that both the Federal Reserve and Donald Trump’s administration are hostile towards. However, the Federal Reserve is not afraid to print again if necessary to ensure the financial stability of America.

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However, he believes that at some point, the financial system will need an intervention—most likely an exemption to the Supplemental Leverage Ratio (SLR) or a new wave of quantitative easing. He argues that the Fed’s unwillingness or inability to make these changes increases the risk of a short-term sell-off of bonds, which would negatively impact the stock market and Bitcoin.

The focus of his analysis is the bitterness between Trump and Federal Reserve Chairman Jerome Powell as well as Fed’s readiness to avoid a crises during Biden’s presidency. In his analysis, he cites former Fed Governor William Dudley’s comments and Powell’s remarks at a press conference that indicated the Fed could change its policy based on Trump policies.

Hayes describes this tension as the backdrop to a scenario where Trump It is possible that the Fed could be forced to intervene in a minor financial crisis. In such a situation, the Fed may have no choice but to intervene in order not to cause a bigger meltdown. This could lead them into monetary growth. According to him, it’s politically efficient for Trump to let yields surge up to crisis level if this means that the Fed is forced to do the massive money printing many expect in the cryptosphere.

Hayes explains that China had appeared to be ready to jump on the reflation bandwagon with an explicit program, until a U-turn occurred in January when the PBOC halted their bond-buying programme and allowed the yuan stabilize at a higher level. Hayes attributes the policy shift to political pressures within China or perhaps strategic maneuvering in preparation for future talks with Trump.

Hayes admits some readers may find it confusing that Bitcoin correlates with traditional risk assets, especially given that Bitcoin’s long-term claim to be a unique form of store value. He points out charts that show a growing 30-day correlation between Bitcoin, the Nasdaq and other risk assets.

He says that in the short-term, Bitcoin remains highly sensitive to fluctuations in the fiat currency market, even though the coin trades uncorrelated over longer time periods. Bitcoin is a leading indicator for him: If bond yields rise and equity markets fall, Bitcoin may begin to plunge before the tech stock market. Hayes is of the opinion that Bitcoin, once authorities release new monetary stimulus in order to reduce volatility, will be first to rebound.

He acknowledges that it is impossible to predict exact outcomes and any investor will have to play on perceived probabilities, rather than certainty. The concept of expected values is what drives his decision. He can reduce his exposure by buying back at 10% more if he thinks there’s a good chance that Bitcoin is going to fall 30% versus the smaller likelihood of it continuing higher.

“Trading isn’t about being right or wrong,” He stresses, “but about trading perceived probabilities and maximizing expected value.” The skeptic also highlights that he can wait until the altcoins make a dramatic movement in liquidation, as is often seen when Bitcoins crash short term. This scenario is what skeptics call “Armageddon” In the so-called “shitcoin space.” He wants to be able to purchase tokens of fundamental quality at deeply discounted prices.

BTC is currently trading for $102,530.

Featured image was created with DALL.E chart by TradingView.com