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BitMEX’s co-founder and former CEO Arthur Hayes shared his theory that the US Federal Reserve’s rate cuts might not significantly benefit Bitcoin prices. In a post published on X on September 2, Hayes noted that despite Federal Reserve Chairman Jerome Powell almost confirming a rate cut in September during his August 23 Jackson Hole speech, Bitcoin prices have struggled and declined since then.
Important Statements from a Notable Figure
Since the speech, Bitcoin prices briefly surged to $64,000, then dropped by 10% to $57,400 on September 2. At the time of writing, Bitcoin had recovered in the last 24 hours to trade at $59,238. Explaining the reason, Hayes pointed to reverse repurchase agreements (RRPs), which are sales of securities with an agreement to repurchase them at a higher price at a future date, paying an interest of 5.3%. This is higher than the 4.38% yield from Treasury bills.
As a result, major money market funds are pulling their cash from Treasury bills and investing it in RRPs instead, leading to less money circulating in the market for risky assets like crypto.
Hayes explained via his X account that the TLDR’s ELI5 of the RRP program could act as an overnight parking spot for cash for large banks and money managers. He also noted that it pays more than other safe investments, thus keeping capital in the parking lot rather than flowing into the economy. Hayes also mentioned that an additional $120 billion has been spent on reverse repo agreements since the Fed announced the potential September rate cut.
Details on the Subject
Hayes emphasized that the development contradicts the assumption that lower interest rates are good for high-risk assets like Bitcoin. Many believe that lower interest rates encourage borrowing and spending, leading to more liquidity in the markets, as safer interest-bearing accounts become less attractive, and a weaker dollar could make Bitcoin appear stronger.
CME Fed Watch tool indicates 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 mean a more aggressive stance by the Fed, potentially leading to a more dramatic market reaction and a greater increase in economic activity.
