Arthur Hayes thinks Bitcoin can still hit $1M this cycle
Arthur Hayes explains that BTFP liquidity remains locked until rates drop, at which point, Bitcoin will rise significantly.
Arthur Hayes said Bitcoin won’t hit $1 million in 90 days.
However, the former BitMEX CEO told Bankless Podcast host David Hoffman that he thinks BTC can “absolutely” go to a million this cycle.
“Do I think Bitcoin is going to a million dollars in 90 days? No, I do not. Do I think Bitcoin is going to a million dollars in this cycle? Absolutely.”
Hayes clarified that “this cycle” is within the next two to three years.
Bitcoin to $1 million?
Balaji Srinivasan hit the headlines this week following his bet that Bitcoin would reach $1 million by June 17. The former Coinbase CTO stated that hyperinflation, fueled by the Fed’s Bank Term Funding Program (BTFP,) would trigger the move.
The BTFP is an emergency lending initiative, offering financial institutions loans against U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets pledged as collateral. It was a response to banking failures, including the collapse of Silicon Valley Bank.
“The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
Quantitative Easing (QE) refers to central banks buying assets, having the knock-on effect of balance sheet expansion, during a low-interest rate environment.
Bitcoin Magazine (BM)explained that the BTFP is QE, except for crucial differences in the program targeting financial institutions specifically and no outright purchase of pledged assets, as the liquidity is via short-term loans. In addition, although not mentioned in the BM article, it is worth pointing out that the U.S. is currently in a (relatively) high-interest rate environment.
However, the program is still a balance sheet expansion, leading to excess liquidity in the banking system.
Hayes explains how BTC gets to a million
Giving his take on how the BFTP would impact crypto/risk-on assets, Hayes began by distinguishing inside money and outside money.
Inside money is a liability on someone else’s balance sheet; it can be dollars, yen, euro, yuan, stocks, and bonds. Crucially, what distinguishes it is “you can’t utilize these things without interfacing with the fiat financial system and the people that are deputized to act in it,” he said.
By contrast, outside money is not a liability on someone’s balance sheet; it can be gold, real estate, and Bitcoin. Outside money is advantageous over inside money because the banking system does not affect it.
“The banking system goes bust, outside money still works. You can still live in your house, you can still walk around with a bar of gold, you can still use the Bitcoin blockchain.”
Hayes said you want outside money when the Fed is propping up the entire banking system, adding that banks (who hold BFTP-qualifying assets) cannot go bust.
Under this setup, the money supply expands infinitely at some point, resulting in price appreciation for outside money assets such as Bitcoin.
On why Bitcoin won’t go to $1 million soon, Hayes said this program guarantees the return of depositors’ money. It is not an inflationary driver if depositors leave their funds with the bank.
“They aren’t lending any of this money out, so there’s not any credit creation happening. I’m just guaranteeing losses. So, for the time being, this is all dead money.”
However, once the Fed cuts rates and goes full dovish, such as being forced to “in a nasty recession,” the system’s liquidity gets unlocked. When combined with easier borrowing, the pivot will trigger a spike in asset prices, sending Bitcoin on its way to $1 million.
Hayes expects the Fed to cut rates “in the near future.” But he still expects a choppy road to $1 million, with dips along the way.