Arthur Hayes: Crypto Rally Unlikely Despite Fed Rate Cuts

• Arthur Hayes crypto predictions suggest Fed rate cuts may not trigger Bitcoin growth due to reverse repo contracts
• Reverse repo contracts currently offer better returns than U.S. Treasury bonds, potentially limiting capital flow to risky assets like crypto
• The upcoming Fed decision could surprise the crypto market, especially for Bitcoin, as Hayes highlights unique challenges

Arthur Hayes, co-founder of BitMEX and a prominent figure in the world of cryptocurrencies, has expressed doubts about the positive impact that a potential interest rate cut by the Federal Reserve could have on Bitcoin.

Despite the expectations of many crypto investors, Hayes believes that other financial factors, such as reverse repo contracts, could limit the inflow of capital towards riskier assets like BTC.

Arthur Hayes on Crypto and the Federal Reserve’s Interest Rate Cuts

The Federal Reserve (Fed), as is well known, had suggested several times that interest rate cuts would be necessary in September to support the health of the US economic ecosystem. As the deadline approaches, crypto investors seemed to be positioning themselves based on this event, viewing it as a sign of greater openness towards “riskier” assets.

However, in the months leading up to this expected cut, BTC’s price hasn’t reacted as anticipated. Instead of rising, the asset has taken on a slightly bearish stance.

Reverse Repo Contracts: Arthur Hayes’ Crypto Insights on Stagnant Capital

According to Arthur Hayes, this symptom can be attributed to multiple causes, but especially to the behavior of funds, which currently benefit from interest rates offered by reverse repo contracts (repurchase agreements) higher than those of Treasury bonds, at 5.3% and 4.38%, respectively.

$BTC is heavy, I’m gunning for sub $50k this weekend. I took a cheeky short. Pray for my soul, for I am a degen.

— Arthur Hayes (@CryptoHayes) September 6, 2024

In this way, they limit the amount of money available for riskier assets like Bitcoin. Repurchase agreements, in themselves, allow operators to offer liquidity, obtaining a fixed remuneration rate when reselling them at a predetermined price. In this case, they represent, according to Hayes, a “safe parking spot” for large banks, keeping capital “stagnant.”

Arthur Hayes’ Crypto Warning Ahead of the Fed’s September Decision

So, while lower interest rates generally make loans and spending more attractive for riskier assets like Bitcoin, it may not be so simple to see a BTC rise in this case. The Fed will meet on September 18 to make a final decision on how to act on rates.

According to CME Fed Watch, there is a 69% probability of a 25-basis point cut. Less likely (31%) is a 50-basis point cut, which could have a much broader impact on the crypto world.

Conclusion

While the crypto market eagerly awaits the Fed’s decision, Arthur Hayes warns that the dynamics of interest rates and reverse repo contracts may continue to hold back Bitcoin, making the cryptocurrency’s potential rise uncertain, even in the case of rate cuts.

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