Crypto Market Braces for Potential Decline, Warns Arthur Hayes

Hayes Predicts Crypto 'Washout' in March

In a recent blog post, Arthur Hayes, the former CEO of BitMex and current chief investment officer at Maelstrom family office, foresees a significant downturn in the cryptocurrency market. He predicts a potential 20-30% drop in the coming months, particularly targeting March as a critical period.

Possible Liquidity Crisis Looming

Hayes's warning centres on the potential collision of risks within U.S. banks and markets. He likens the situation to a "liquidity rug pull," reminiscent of last year's banking crisis. This could be triggered by the drawdown of the Federal Reserve's reverse repo program (RRP), which is rapidly declining from its $2.5 trillion peak at the end of 2022.

Federal Reserve Facility Expiration

Another factor contributing to the predicted turmoil is the expiry of the Bank Term Funding Program (BTFP) on March 12. This program, established to mitigate last year's regional banking crisis, offered banks more favourable lending options against their U.S. government bond holdings. Its expiration could cause significant disturbances, especially in an election year where extension seems unlikely.

Global Financial Impact Expected

The combination of the RRP's reduction and the absence of the BTFP could lead to a global financial market crisis, according to Hayes. He believes that the scarcity of liquidity and the inability to cover bond losses will severely impact financial markets.

Bitcoin's Price Trajectory

Regarding Bitcoin, Hayes suggests that a correction of 20-30% from early March prices is likely, possibly reaching 40% if Bitcoin rallies to $60,000-$70,000 soon. He anticipates an initial sharp decline in Bitcoin's value, followed by a recovery prior to the Fed's meeting on March 20, highlighting Bitcoin's unique position as a neutral reserve currency.

Other Analysts Echo Hayes's Sentiments

Hayes is not alone in his forecast. Other analysts, including CryptoQuant and K33 Research, have also predicted a correction in the crypto market. Bitcoin currently stands above $43,000, yet its future trajectory remains uncertain.