Arthur Hayes Discusses Why Federal Reserve Rate Cuts Fail to Boost Bitcoin

Arthur Hayes, the co-founder and ex-CEO of BitMEX, recently offered insights into why anticipated rate cuts by the U.S. Federal Reserve might not boost Bitcoin’s value.

In a recent X post, Hayes, now CIO at Maelstrom, commented on the aftermath of Fed Chair Jerome Powell’s speech at Jackson Hole on August 23, which hinted at a likely rate reduction in September. Following the speech, Bitcoin’s value initially surged to $64,000 but then dropped by 10% to $57,400 on September 2, later slightly recovering to $59,238.

Hayes attributed the lackluster performance of Bitcoin to the appealing 5.3% interest rates offered by reverse repurchase agreements (RRPs), in comparison to the 4.38% yields on Treasury bills. Consequently, major money market funds are shifting investments from Treasury bills to RRPs, reducing the liquidity available for higher-risk assets like cryptocurrencies.

An X user, under the handle “ELI5 of TLDR,” explained that RRPs are akin to a temporary storage for excess cash for big banks and money managers, offering higher returns than other low-risk investments, which keeps capital out of the broader economy.

Hayes pointed out that following the Fed’s indication of a potential rate cut in September, an extra $120 billion was invested into RRPs. He noted this contradicts the common belief that lower interest rates favor high-risk assets like Bitcoin, as they typically stimulate borrowing and spending, thereby increasing market liquidity while depreciating the dollar, which could theoretically strengthen Bitcoin’s appeal.

The CME Fed Watch tool currently predicts a 69% probability of a 25 basis point reduction and a 31% chance of a 50 basis point cut at the Fed’s meeting on September 18, suggesting that a larger cut might lead to more significant economic impacts and potentially greater market movements.

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