Co-founder and former CEO of BitMEX, Arthur Hayes has shared his theory as to why interest rate cuts by the United States central bank may not do much for Bitcoin prices.

In a post on X on Sept. 2, the Maelstrom Chief Investment Officer said that despite Federal Reserve chair Jerome Powell confirming a rate cut in September at his Jackson Hole speech on Aug. 23, Bitcoin prices have struggled and been in decline.

Since the speech, BTC prices briefly spiked to $64,000 before falling 10% to a low of $57,400 on Sept. 2. It has recovered slightly to trade at $59,238 at the time of writing. 

Giving his take on why, Hayes pointed to reverse repurchase agreements — which are the sale of securities with the agreement to repurchase them at a higher price at a specific future date — noting they are paying 5.3% interest.

This has been higher than Treasury bills — short-term government debt obligations — which are paying lower yields of 4.38%.

As a result, large money market funds are taking their cash out of Treasury bills and putting it into reverse repos instead, resulting in less money floating around in the market for risk-on assets such as crypto, explained Hayes.

X account ‘ELI5 of TLDR’, explained the reverse repurchase program can act like overnight parking for big banks and money managers to place their cash.

It is also paying more than other safe investments, so capital stays in the “parking lot” instead of flowing through the economy, they explained.

Since the Federal Reserve announced the probable September rate cut, an additional $120 billion went into reverse repos, Hayes noted. 

Divergence between RRPs and T-bills since Jackson Hole speech. Source: St. Louis Fed 

Hayes points out that the development goes against the general assumption that lower interest rates are good for high-risk assets such as Bitcoin.

Most believe that low interest rates encourage borrowing and spending which means more liquidity in markets, as safer, interest-bearing accounts are no longer as attractive, while a weaker dollar can make BTC appear stronger. 

According to the CME Fed Watch tool, there is currently a 69% chance of a 25 basis point cut and a 31% chance of a 50 basis point cut at the Fed’s September 18 meeting. 

A larger rate cut would signal a more aggressive stance by the Fed, potentially leading to a more dramatic market response and a bigger boost to economic activity. 

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