Bitcoin’s Late Q1 Peak: How Fed’s Liquidity Measures May Impact the Market

Fed’s Quantitative Tightening and Liquidity Shifts

BitMEX co-founder Arthur Hayes predicts that the Federal Reserve’s quantitative tightening and liquidity measures could drive Bitcoin to a late Q1 peak. In his recent essay, Hayes points out the Fed’s challenges in maintaining market stability while pulling out $180 billion through quantitative tightening from January to March.

Net Liquidity Injection in Q1

At the same time, a change to the Reverse Repo Program rate will add $237 billion of liquidity, Hayes notes. This change will result in money flowing into higher-yielding Treasury bills, leading to a net liquidity injection of $57 billion in Q1.

Bitcoin and the entire market are expected to react to these liquidity shifts. Hayes believes that the market will peak “in mid to late March,” similar to March 2024, when Bitcoin peaked around $73,000.

Treasury’s General Account and Its Impact

The Treasury’s General Account will also play a significant role in the liquidity shifts. “Bad Gurl Yellen” (Hayes’ nickname for Treasury Secretary Janet Yellen) has begun “extraordinary measures” to fund the government while waiting for Congress to raise the debt ceiling. Until then, the Treasury can only spend from the TGA, which Hayes estimates will be depleted by May or June.

This spending adds liquidity to the market, but once the ceiling is raised, the Treasury will need to refill its account, pulling liquidity out. This could lead to headwinds for the market, particularly after tax deadlines and TGA replenishment.

Future Moves and Market Impact

Hayes believes that the Fed is “exhausting all tools at its disposal,” adding that future moves could include stopping quantitative tightening or even restarting quantitative easing. For now, Hayes says liquidity conditions in Q1 suggest a temporary boost for risk assets like Bitcoin.

“The Fed’s challenges in maintaining market stability while pulling out $180 billion through quantitative tightening from January to March could drive Bitcoin to a late Q1 peak.”

Some key points to consider:

  • The Fed’s quantitative tightening and liquidity measures could drive Bitcoin to a late Q1 peak.
  • A net liquidity injection of $57 billion in Q1 could boost risk assets like Bitcoin.
  • The Treasury’s General Account will play a significant role in the liquidity shifts.
  • Future moves by the Fed could include stopping quantitative tightening or restarting quantitative easing.

Stay up-to-date with the latest news and trends in the world of cryptocurrencies and finance on Global Crypto News.

Post Views: 1