“Buy the F***ing Pivot:” Arthur Hayes on Bank Bailouts and Bitcoin’s “Endgame”
BitMEX co-founder and crypto essayist Arthur Hayes published a lengthy blog post Thursday breaking down the Federal Reserve’s new program to protect the banking system — and what it means for Bitcoin.
The initiative titled “Bank Term Funding Program” is considered by Hayes as a “repackaged” form of Yield Curve Control (YCC) that will trigger a new bull market for Bitcoin.
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Hayes began by reviewing the macroeconomic backdrop since 2020, from the period of strong covid-related stimulus to the subsequent tightening of interest rates through 2022. The subsequent crisis in financial assets crushed banks’ bond portfolios, and a higher fed funds rate incentivized a rapid withdrawal of deposits from small banks to higher yield money market funds.
This forced the smaller banks to sell the US Treasuries and mortgage-backed securities on their balance sheets at a realized loss – forcing a bank to Silicon Valley Bank earlier this month.
To stop contagion surrounding SVB’s collapse, the Federal Reserve bailed out all of the bank’s depositors, and also announced its own Bank Term Funding Program (BTFD) to provide liquidity to US banks.
The program allows any federally insured depository institution to use government debt and mortgage-backed securities as collateral to borrow money without limits – valuing collateral at face value, rather than current market value.
According to Hayes, this implicitly allows $4.4 trillion to be pumped into the US economy – even more than the COVID stimulus, which was worth $4.189 trillion. “During the COVID money printing episode, Bitcoin rose from $3k to $69k,” he noted.
Hayes also predicted that the US dollar is likely to strengthen further against other currencies since the US has set a precedent for guaranteeing depositor funds in systemically important US banks. So, to prevent deposits fleeing from banks in other countries, central banks globally will be forced to provide equivalent depositor guarantees.
While the Fed’s new program is only intended to last for one year, Hayes does not believe the central bank will stick to the March 2024 cutoff date.
“Given that the Fed has no stomach for the free market where banks fail due to bad management decisions, the Fed can never remove their deposit guarantee,” he wrote. “Long live BTFP.”
How Bitcoin Moons
Money printing is generally seen as bullish for all financial assets, including Bitcoin, which experienced a historic rally from March 2020 to November 2021 while the Fed’s benchmark interest rate was at just 0.25. The BTFP, according to Hayes, “initiates infinite money printing,” meaning Bitcoin will rise again.
However, it will be a hated rally: the media, he argued, will try to blame the banking fallout on the crypto industry, and be confused by how Bitcoin continues to soar despite the carnage in the mainstream financial world.
Some politicians have even claimed that the government’s shutdown of crypto-friendly Signature Bank earlier this month was meant to send a “strong anti-crypto message“, rather than protecting depositors.
“Instead, what crypto did was once again demonstrate that it is the smoke alarm for the rancid, profligate, fiat-driven Western financial system,” Hayes wrote.
