Arthur Hayes: Fed Rate Cuts Do Not Help Bitcoin

Arthur Hayes, co-founder and former CEO of BitMEX, has shared his thoughts on why interest rate cuts by the U.S. Federal Reserve may have limited impact on Bitcoin prices.

In a post on X on September 2, the Maelstrom chief investment officer commented that despite Federal Reserve Chair Jerome Powell signaling a likely rate cut in September during his Jackson Hole speech on August 23, Bitcoin prices have faced a decline since then.

Following the speech, Bitcoin prices briefly surged to $64,000 but then dropped by 10% to a low of $57,400 on September 2. As of September 3, prices recovered slightly, trading at $59,238.

Offering his perspective, Hayes pointed to reverse repurchase agreements (RRPs)—the practice of selling securities with the promise to repurchase them later at a higher price—and noted that they are yielding 5.3% interest.

This yield is higher than that of Treasury bills, which currently offer a lower return of 4.38%.

Consequently, large money market funds are moving their cash out of Treasury bills and into RRPs, reducing the available capital for riskier assets like cryptocurrencies, according to Hayes.

An X account called “ELI5 of TLDR” elaborated that the RRP program serves as a temporary holding place for big banks and money managers to store their cash overnight.

They also mentioned that RRPs are providing better returns than other safe investments, which keeps capital locked in the “parking lot” instead of circulating through the economy.

Since the Fed hinted at a possible rate cut in September, an additional $120 billion has flowed into reverse repurchase agreements, Hayes noted.

He emphasized that this trend challenges the belief that lower interest rates favor high-risk assets like Bitcoin.

Many people assume that lower rates stimulate borrowing and spending, increasing liquidity in markets as safer, interest-bearing options lose appeal, while a weaker dollar could strengthen Bitcoin’s value.

According to the CME Fed Watch tool, there is a 69% likelihood of a 25 basis point cut and a 31% chance of a 50 basis point cut at the Federal Reserve's September 18 meeting.

A larger rate cut could indicate a more aggressive approach by the Fed, potentially leading to a stronger market reaction and a greater boost to economic activity.

Sources:

https://cointelegraph.com/news/arthur-hayes-explains-why-fed-rate-cuts-wont-help-bitcoin

https://x.com/cryptohayes/status/1830554303817273823

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html