Former BitMEX CEO Arthur Hayes made a concerning short-term prediction for the price of Bitcoin. In his latest blog post
“Yellen or Talkin’?” published on January 24th, 2023, Hayes wrote that “Bitcoin price will find a local bottom between $30,000 and $35,000.” He believes that several macroeconomic factors are aligning to cause significant downward pressure on BTC in the coming months.
Intensified Geopolitical Tensions Causing Inflation Surge
Pointing to the conflict between the US and Houthi rebels in the Red Sea, Hayes said that this would likely feed into already high inflation. The geopolitical tension between these two could severely disrupt global shipping and logistics, causing shipping costs to surge.
At the same time, with the 2024 U.S. presidential election approaching, politically-motivated policy decisions could further destabilize markets.
Most immediately impactful is the dilemma facing the Federal Reserve and Chair Jerome Powell. Risk assets like cryptocurrencies are anticipating a “pivot” to lowering rates and restarting quantitative easing (QE) as early as March 2023 to inject liquidity back into the system.
“Due to weather and geopolitics, higher shipping costs could cause a surge in inflation in the third and fourth quarter of this year. As Powell is undoubtedly aware of these issues, he will do everything he can to talk a big game about rate cuts without having to actually cut them. What might be a mild increase in the rate of inflation due to increased shipping costs could be supercharged by rate cuts and the resumption of QE. The market doesn’t appreciate this fact yet, but Bitcoin does,” Hayes writes.
2024 U.S. Election — Political Uncertainty Threatens Market Stability
Secondly, Hayes discusses the impending expiration of the Federal Reserve’s Bank Term Funding Program (BTFP).
Since the financial markets meltdown in March 2022, the U.S. government has provided a critical lifeline to the banking system via BTFP. This program has offered cheap, stable funding to help stabilize banks and prevent a more catastrophic seizure.
However, the BTFP is now set to expire soon. The implications of withdrawing the BTFP are still unclear and depend heavily on the response from Treasury Secretary Janet Yellen. She will face difficult trade-offs around injecting more liquidity to support banks versus the inflation risks that presents. How Yellen moves forward with these tensions in the coming months will significantly sway markets.
“The only thing that trumps fighting inflation is a financial crisis. That is why, to get the cuts, QT taper, and the possible resumption of QE the market believes is already in the bag come March, we first need a few banks to fail when the BTFP is not renewed,” Hayes wrote further in the blog post.
Hayes Warns of Declining BTC Price
When it comes to Bitcoin, Hayes believes the confluence of threats is spelling danger for prices. Between potential banking sector distress, the removal of key Fed liquidity support via the BTFP, and heightened geopolitical tensions, he sees the recent 20% BTC price drop as just the beginning.
“A 30% correction from the ETF approval high of $48,000 is $33,600. Therefore, I believe Bitcoin forms support between $30,0000 to $35,000. That is why I purchased 29 March 2024 $35,000 strike puts,” Hayes said.
Specifically, Hayes forecasts that Bitcoin will need to find price support around the $30,000 to $35,000 zone, representing a further 15-30% decline from already depressed levels.
That said, after such a major correction, Hayes contends that longer-term investors should view sub-$35,000 Bitcoin as an opportunity to buy more at undervalued levels.
Evidence of Bitcoin’s precarious position has already begun surfacing in recent days. As of January 23rd, BTC briefly cratered below $38,500 on the Bitstamp exchange, its lowest level since early December 2023. While it did manage to recover about $1,700, the technical damage has been done according to Hayes.
