The crypto market has done very well in 2023, with Bitcoin bouncing back from under $30,000 to over $45,000. Altcoins like Solana have also gained well over 100% with a lot more room to go.

This has raised hopes of investors, bringing about the hope of a new bull cycle coming in 2024. However, former CEO and co-founder of BitMEX, Arthur Hayes expects something different in the next few months. 

In a blog post on Thursday, Hayes outlined three macroeconomic factors he expects to affect the crypto market and bring about a “vicious washout of all the crypto tourists” in March. 

The factors according to Hayes are the Federal Reserve’s Reverse Repo Program (RRP), Bank Term Funding Program (BTFP) and March’s interest-rate decision, Hayes wrote. 

For those not familiar with it, RRP is a central bank tool to help manage short-term liquidity — using securities, like government bonds, as collateral, enabling financial institutions to earn returns on cash reserves. 

The BTFP is a program that enables central banks to provide longer-term loans to commercial banks, using similar high-quality assets as collateral, aiding banking sector stability.

The Macroeconomic Factors

Hayes says that he believes that liquidity pumped into the financial market as shown by declining RRP balance is expected to finish by March. Without another source of dollars to pump to “keep the party going,” crypto may also get affected.

“Without any other new sources of dollar liquidity, bonds, stocks, and I believe crypto will also get the stick. I loaded up on crypto in the second half of 2023, and I believe now until April is a no-trade zone in terms of the addition of risk,” he said.

Similarly, the BTFP is set to expire on March 12 and Hayes anticipates Treasury Secretary Janet Yellen initially refusing to renew the program. This can potentially lead to financial instability which could further reduce liquidity according to Hayes. 

Again, the effect of this decision could affect the banking sector and the broader financial markets, including crypto assets. He however anticipates that Yellen may be forced to renew the program. 

“The combination of a lack of liquidity gushing from the RRP and the lack of printed money to cover the bond losses on banks’ balance sheets will decimate the financial markets globally,” he said. “This is a correlation for one moment. All assets, including crypto, will fall together as the market hyperventilates at the prospect of the free market working once more and cleansing the system of insolvent banking institutions.”

Concerning the Fed meeting coming on March 20, Hayes sees the potential for the central bank to initiate its first rate cut of at least 0.25% since it began raising rates in March 2021.

“If my forecast is correct, the market will bankrupt a few banks within that period, forcing the Fed into cutting rates and announcing the resumption of the BTFP,” Hayes wrote.

Going Forward

None of Hayes’ predictions are certain. However even if they do come to pass, the crypto market remains optimistic considering that other events will follow including the Bitcoin halving which is supposed to eventually lead to another bull run.

It remains to be seen what happens though, because JP Morgan has also projected that the halving may already be priced into Bitcoin’s 2023 rally.