Co-founder and former CEO of cryptocurrency exchange BitMEX, Arthur Hayes, recently turned to X for… explain why he thinks the long-awaited interest rate cuts by the US Federal Reserve might not have the expected impact on the price of Bitcoin.
Interest rate cuts are not the silver bullet for a higher BTC price
Hayes stated on X that despite Federal Reserve Chairman Jerome Powell all but confirming interest rate cuts from September 2024 onwards, the price of Bitcoin might not behave the way many in the cryptocurrency market expect.
Hayes notes that since Powell’s speech at Jackson Hole on August 23, 2024, the price of Bitcoin has been on a steady downward trajectory, falling from roughly $64,000 to $58,881 on September 3, 2024.
According to the former BitMEX CEO, upcoming interest rate cuts have made reverse repurchase agreements (RRPs) a relatively more attractive investment prospect than Treasury bills that attracted significant capital during the interest rate hikes that began in March 2022.
For those who don’t know, repo loans are similar to short-term loans used in money markets, where one party (usually a central bank or financial institution) sells securities to another party with the promise to repurchase the same securities at a later date for a higher price. The difference between the sale price and the repurchase price is the interest earned by the buyer of the securities.
Currently, RRPs pay a decent 5.3% interest, making them an attractive and safe avenue for institutions looking to temporarily park their capital. In comparison, 1-year Treasury bills are pay 4.38% interest.
Hayes adds that the difference in interest rates between RRPs and Treasury bills is forcing large banks and money market funds to move their capital out of Treasury bills and into RRPs, leaving less liquidity in the market that could be used to buy more risky assets like BTC.
Notably, RRPs have received an injection of an additional $120 billion since the announcement of likely interest rate cuts beginning in September 2024. Hayes expects this trend to continue as long as Treasury bill rates are lower than RRP rates.
Could Bitcoin Halving Play a Key Role in Bull Market Resumption?
Hayes’ explanation contradicts the widely shared assumption that interest rate cuts aid The price of risk assets such as stocks and digital assets is soaring. However, it is worth remembering that this year also saw the first Bitcoin halving since 2020.
Historically, Bitcoin has become thank Bitcoin has lost value during its halving years, including in 2020 when the COVID pandemic decimated the prices of all risk assets at the beginning of the year. Several seasoned analysts expect Bitcoin to replicate its post-halving price action, which would generate fresh bullish momentum that could propel the leading digital asset to new all-time high prices.
The culmination of interest rate cuts, the Bitcoin halving, along with increase Institutional interest in Bitcoin exchange-traded funds (ETFs) in 2024 has the potential to make for an exciting rest of the year in the cryptocurrency industry.
Featured image from Unsplash.com, chart from TradingView.com
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