Bitrabo Editorial
Arthur Hayes, the co-founder and former CEO of BitMEX cryptocurrency exchange, shared insights on why he believes the anticipated interest rate cuts by the US Federal Reserve might not have the desired impact on Bitcoin’s price.
Interest Rate Cuts and Bitcoin Price Behavior
Hayes pointed out after Jerome Powell’s announcement on interest rate cuts starting from September 2024, Bitcoin’s price did not react as expected. Instead, it saw a decline from around $64,000 to $58,881 by Sep 3, 2024.
Hayes highlighted that the imminent interest rate cuts have made reverse repurchase agreements (RRPs) a more appealing investment option compared to treasury bills, which attracted substantial capital during previous interest rate hikes starting in March 2022.
RRPs function as short-term loans in money markets where one party sells securities to another party with an agreement to repurchase them at a later date for a higher price, earning interest in the process.
Currently, RRPs offer a significant 5.3% interest rate, making them an attractive choice for institutions seeking a safe temporary investment. In contrast, 1-year treasury bills offer a 4.38% interest rate.
Hayes noted that the interest rate gap between RRPs and treasury bills is prompting major banks and money market funds to shift capital from treasury bills to RRPs, reducing market liquidity that could have been directed towards risk-on assets like Bitcoin.
Since the expected interest rate cuts, an additional $120 billion has flowed into RRPs. Hayes anticipates this trend to persist as long as treasury bill rates remain lower than RRP rates.
The Role of Bitcoin Halving in Market Trends
Hayes’ viewpoint contrasts the common belief that interest rate cuts bolster the prices of risk-on assets like stocks and digital assets. Notably, 2024 witnessed the first Bitcoin halving since 2020.
Historically, Bitcoin has tended to surge in value during halving years, such as in 2020 amidst the COVID pandemic. Many analysts predict Bitcoin to follow a similar post-halving price pattern, sparking a bullish trend that could drive the digital currency to new record highs.
The convergence of interest rate cuts, Bitcoin halving, and rising institutional interest in Bitcoin exchange-traded funds (ETFs) in 2024 sets the stage for an intriguing remainder of the year in the crypto sector.