Bitcoin (BTC), Ether (ETH) and even nascent altcoins are blocking “buying,” investors before the risk-off said.
In a blog post released on February 8, industry stalwart Arthur Hayes announced a u-turn in his current crypto investment plans.
Hayes replaces “assets at risk” song
The current macroeconomic conditions that came from the Federal Reserve of the United States before made Arthur Hayes want to avoid what he called “risky assets.”
As inflation slows along with the Fed’s rate hikes, new storms are brewing in the U.S., and the Fed, Congress and the Treasury will direct the economy as expected, he said.
The problem is estimating how the event will play out over the course of the year. For Hayes, 2023 can be divided into two parts, with H1 being the ideal investment environment for crypto.
This is contrary to his previous thesis from mid-January, where the former CEO of BitMEX said that he remained on the sidelines for fear of a capitulation event caused by the Fed counting risk assets.
“My concern about this potential outcome, which I handicap will occur later in 2023, has led me to keep my reserve capital in money market funds and US Treasury bills,” he said.
“Thus, part of the liquid capital that I wanted to buy crypto has been lost in the current monster rally that we saw from the local bottom. Bitcoin has rallied close to 50% from the $16,000 low that we saw in the FTX fallout.
Hayes continued that Bitcoin is likely to be far from finished with the recovery despite the 40% gains in January alone, comparing the risk asset environment to 2009 and the beginning of quantitative easing.
This year, the picture is complicated – quantitative easing has given way to quantitative tightening, where liquidity is drained from the US financial system at the expense of risk assets.
However, H1 looks set to provide relief, with liquidity returning to avoid a rush to close debt. This can continue until Congress votes to raise the debt ceiling in the summer, which Hayes and others argue is inevitable.
Cash in the Treasury General Account (TGA) will be emptied by up to $500 billion, canceling the $100 billion in monthly liquidity that the Fed spends.
“The TGA will be exhausted by the middle of the year. Immediately after it is exhausted, there will be a political circus in the US about raising the debt limit,” the blog post predicted.
“Given that the Western-led fiat financial system will collapse overnight if the US government decides not to raise the debt ceiling and instead defaults on the assets that support the system, it’s safe to assume the debt ceiling will be raised.”
Searching for “unwinding” macros
Then the tides turn, and risk assets can become a thorn in the side of every investor again.
Related: BTC price metrics showing biggest Bitcoin bull out at $23K
It’s all a matter of time, Hayes believes. The plan is to move to US dollar cash, from where segue to select risk assets is possible. At the top of the menu, it will appear, is Bitcoin.
“I will distribute it in the coming days. I hope my size is important, but it is not – so do not think that if it happens, it will have a noticeable effect on the price of the orange coin,” he told his readers.
However, going forward, altcoins are the main opportunity, the blog post explains in its conclusion, and this is also governed by time.
“The key to shitcoining is to know that they rise and fall in waves. First, the rally of crypto reserve assets – that is, Bitcoin and Ether. The rally in these stalwarts eventually stalls, and then the price drops a bit,” wrote Hayes about the crypto market cycle.
“At the same time, the shitcoin complex made an aggressive rally. Then the shitcoins found gravity, and interest returned to Bitcoin and Ether. And this process of escalation continued until the secular bull market ended.
Year-to-date, the total crypto market cap has gained about 34%, data from Cointelegraph Markets Pro and TradingView show.
Guiding the process in 2023, then, is the “unwinding” of the brief window of more accommodative economic conditions that is currently open in the US
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