Ali Raza
Arthur Hayes, the co-founder of 100x, has shared his sentiments on the decisions being made by the Federal Reserve on interest rates and the impact that this would have on the financial markets. Hayes noted that he was getting interested in growing his portfolio in the cryptocurrency market.
Arthur Hayes seeks to grow his crypto portfolio
Hayes noted that he was concerned about the Fed pivoting because of dysfunction in the market. He noted that if the Fed were to start printing more money as inflation appeared to be under control, the markets should expect a significant correction, with risky assets suffering the most. Recently, the Chair of the US Federal Reserve, Jerome Powell, said that he expects a significant drop in inflation in 2023.
JUST IN: FED Chair Jerome Powell says he "expects 2023 to be a year of significant decline in inflation."
— Watcher.Guru (@WatcherGuru) February 7, 2023
He noted that he had anticipated a significant correction in risk assets towards the end of 2023. This promoted a slowdown in capital allocation in money market funds and short-term US Treasury bills. However, the bearish sentiment caused him also to take out capital from the crypto markets, leaving him at a loss after failing to tap into Bitcoin’s 50% rally since the lows caused by FTX’s collapse.
In the Medium article, Hayes noted that hedge funds believed that the Federal Reserve was dovish, hence the optimism about the market. Moreover, hedge funds were not concerned that the Treasury General account would “be drawn down” because the US government debt level reached the debt ceiling.
If the US Treasury were interested in incurring new expenses, it needed to cater to them independently. If these were to happen, the Treasury would most likely use all the $500 billion of the TGA in the US economy, injecting liquidity into the economy and supporting the prices of risk assets.
The Treasury was likely to run out of TGA funds by the summer, after which the US Congress will approve raising the debt ceiling. At this point, the Treasury will accumulate more debt in the market. In this scenario, the Fed would shrink its balance sheet, affecting liquidity.
The growing concern about the debt level is creating a liquidity situation with the US dollar and global central banks, which was good for risk assets. Therefore, Hayes planned to invest his funds during this period when the monetary policy was loose.
He added,
I emailed by banker to start pulling money from my money market funds and US Treasury portfolio. It’s intended destination? All aboard the S.S. Bitcoin, en route to a final port in Shitcoin city.
Crypto markets recovery
The cryptocurrency markets have significantly recovered since the beginning of the year. The recovery comes as the Fed eases its hawkish stance on interest rates. The Fed recently raised rates by 25 basis points, raising speculations of a pause in the coming months.
However, there are concerns about the tightening job market after the US President said that 12 million jobs had been created in two years. Despite the intense layoffs across US markets, unemployment remains significantly low.
Related
- Arthur Hayes Thinks it is Likely that Crypto Will Crash Back to Recent Lows at Sub $16k
- Ethereum Price Prediction – Will Arthur Be Right Again, $10k by 2023?
- Why Marketers Need to Learn the Language of Finance
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This article was written for Business 2 Community by Ali Raza.
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