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Crypto Market to Peak in March, Predicts Arthur Hayes
In a recent essay, Arthur Hayes, a well-known digital asset investor and former CEO of BitMEX, predicts that the crypto market will experience a significant rally in early 2025, with a peak anticipated in "mid to late March." The essay, titled "Sasa," examines various macroeconomic factors such as U.S. Federal Reserve policies, Treasury General Account (TGA) balances, the Fed's Reverse Repo Facility (RRP), and political uncertainties in Washington.
Hayes begins by drawing a parallel between the precarious conditions in Japan's Hokkaido ski resorts and potential obstacles in the crypto market. He uses the image of insufficient snow cover over bamboo grass (sasa) as a metaphor for market risks that could hinder crypto rallies. Despite a strong start to 2025, Hayes warns of potential dangers arising from the U.S. political and fiscal landscape.
Why March Could Signal the Next Crypto Peak
"As we start 2025, crypto investors are questioning whether the Trump-induced market surge can persist," Hayes writes, referring to initial optimism around President Trump's second term. Although Hayes anticipates potential market disappointment due to high policy expectations, he believes this could be mitigated by a strong "dollar liquidity impulse."
He emphasizes the role of the Fed's RRP in Bitcoin's price movements. Since Q3 2022, the reduction in the RRP has been positively correlated with increases in crypto and equity prices. Hayes notes that the U.S. Treasury, led by Janet Yellen, shifted from issuing longer-term bonds to shorter-term T-bills, effectively removing over $2 trillion from the RRP and boosting global market liquidity.
With the RRP now near zero, the Fed has adjusted its policy to make the facility less attractive. Hayes explains that this could inject up to $237 billion into the market as funds move into higher-yielding Treasury bills. Meanwhile, ongoing quantitative tightening (QT) continues to reduce liquidity by $60 billion monthly, resulting in a net liquidity injection of $57 billion over the quarter.
Hayes also highlights the TGA's role in market dynamics. With upcoming debt ceiling negotiations, the Treasury's inability to issue new debt means it can only spend down the TGA, releasing liquidity into the market. Hayes estimates the TGA, currently at about $722 billion, could be depleted by mid-2025 without a debt ceiling resolution. He anticipates that political gridlock in Congress may delay new spending, contributing to legislative brinkmanship.
Hayes projects that TGA drawdowns could release an additional $555 billion from January through March. Combined with the Fed's adjustments, total liquidity could rise by $612 billion in the first quarter. He identifies March as a pivotal moment when this liquidity boost might diminish, especially if anticipated federal spending or pro-crypto legislation from the Trump administration is delayed.
Drawing on historical trends, Hayes cites Bitcoin's performance in 2024, which peaked in mid-March before declining. He suggests that as TGA spending wanes, the liquidity environment could shift to neutral or negative, leaving risk assets like crypto vulnerable.
While Hayes acknowledges that other factors, such as Chinese credit expansion, Bank of Japan policies, and potential U.S. dollar devaluation strategies, could affect his timeline, he remains confident in the predictive value of RRP and TGA mechanics. He concludes that the surge in crypto and stock markets since late 2022 aligns with the substantial reduction in the RRP.
Hayes advises that the first quarter of the year typically offers significant selling opportunities, suggesting that investors might consider taking profits by spring and waiting for improved conditions later in the year. At the time of writing, Bitcoin is trading at $101,344.