Crypto Market Will Peak In Mid To Late March, Predicts Arthur Hayes

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In a recently published essay on Monday, Arthur Hayes, a well-known digital currency investor who once led BitMEX, posits that the cryptocurrency market is set to experience a significant surge during the first quarter of 2025, potentially peaking around mid to late March. Hayes’s latest work, titled “Sasa,” explores various economic factors, such as the US Federal Reserve (Fed) policy, balances in the US Treasury General Account (TGA), the Fed’s Reverse Repo Facility (RRP), and political instability within Washington.

In the introduction of his essay, Hayes describes a captivating image of Japan’s Hokkaido ski resorts, drawing parallels between the perilous backcountry conditions caused by shallow snow cover over sharp bamboo grass (sasa) and the unforeseen challenges that might abruptly halt crypto market surges. He notes that the year 2025 has started with abundant snowfall in Hokkaido, symbolizing a sudden influx of liquidity that could drive digital asset prices higher. However, he cautions that the political and economic climate in the United States could introduce unforeseen dangers.

Why March Could Mark The Next Peak For Crypto

As 2025 arrives, crypto investors are pondering if the ‘Trump effect’ will persist. This phrase recalls the initial enthusiasm connected to President Donald Trump’s second term. Although Hayes anticipates that “the lofty expectations for policy action from the Trump administration could lead to market disillusionment,” he suggests that any temporary market negativity might be balanced by a robust “surge in dollar liquidity.

Hayes emphasizes that the Federal Reserve’s Repo Rate Program (RRP) has significantly influenced Bitcoin‘s price trend. From the third quarter of 2022, the reversal of this program seems to align positively with the fluctuations in both cryptocurrency and stock market prices.

He suggests that Bitcoin hit its lowest point in the third quarter of 2022, which coincided with the Fed’s Reverse Repo Facility (RRP) reaching its peak. To explain this, he mentions that U.S. Treasury Secretary Janet Yellen played a significant role by transitioning from selling longer-term bond coupons to shorter-term T-bills instead. This move, according to him, led to the removal of over $2 trillion from the RRP, thereby increasing liquidity in global markets.

Currently, as the RRP (Reserve Repurchase Agreement) rate has nearly reached zero, the Federal Reserve has adjusted its policy by making the RRP less appealing. Hayes notes that this change still holds the possibility of injecting approximately $237 billion into markets once the remaining RRP funds are transferred to Treasury bills with higher yields. Concurrently, quantitative tightening (QT) continues to eliminate $60 billion each month, amounting to a total of $180 billion from January through March. Taking both factors into account results in a net injection of $57 billion during the quarter.

A significant aspect of Hayes’s research revolves around the Treasury General Account (TGA). With upcoming debt ceiling discussions, the Treasury’s inability to issue fresh debt forces them to meet expenses solely by drawing from the TGA, which in turn frees up liquidity.

According to Hayes, the Treasury can only spend money from its current account (TGA) because the total US debt limit needs to be raised by the Congress before more debt can be accrued. The TGA currently holds approximately $722 billion.

It’s suggested that if there’s no resolution on the debt ceiling, the TGA might run out by May or June. The key point here is understanding when Congress might reach a deal, as it pertains to crypto markets. The essay underlines Trump’s slim majority in Congress and the probability that fiscally conservative Republicans may not readily agree to a swift or easy compromise. Meanwhile, Democrats, according to Hayes, seem unwilling to support increased spending for a president they oppose—adding more tension to legislative negotiations.

Based on Hayes’s estimations, TGA drawdowns might potentially unlock an extra $555 billion between January and March. Added to the $57 billion net liquidity from the Fed’s RRP and QT adjustments, the total dollar liquidity could potentially increase by up to $612 billion during the first quarter.

Hayes highlights March as a potential turning point – a time when the current surge in liquidity could start to decrease, and if delays occur regarding anticipated federal spending or pro-cryptocurrency legislation from the Trump administration, expectations might not be met as planned.

He suggests that Team Trump’s disappointment in their proposed crypto-friendly and business-friendly legislation can be compensated by a very favorable dollar liquidity situation, as he puts it. Later, he adds that this peak liquidity might decrease swiftly when the market predicts the resolution of the debt ceiling and the replenishment of the TGA (Treasury General Account).

Looking back historically, Hayes points out that in 2024, Bitcoin’s price reached approximately $73,000 in mid-March, but then stabilized and eventually fell prior to the April 15 tax deadline. His explanation is simple: once TGA spending has been expended, the overall liquidity situation shifts from positive to neutral or negative, making risk assets susceptible to potential declines.

Although Hayes admits that rapid credit growth in China, Bank of Japan’s interest rate decisions, and the Trump administration’s strategy for potentially devaluing the dollar against other major currencies or gold could disrupt his forecast, he is confident that the Reserve Repurchase Agreement (RRP) and Term Deposit Facility (TGA) mechanisms provide reliable indicators in the short term. Notably, these two sources of liquidity seem robust enough to overshadow any dissatisfaction with Trump’s policies until at least the end of March.

He asserts that major economic issues cannot be predicted beforehand, but he trusts the mathematics used to forecast how the Reserve Repurchase Agreement (RRP) and Treasury General Account (TGA) will evolve over time. Notably, he highlights a correlation between the escalating cryptocurrency and stock markets since the end of 2022 and the significant decline in the RRP.

Hayes ends by stating that historically, markets tend to present substantial selling opportunities during the first quarter. As spring arrives, investors may find it advantageous to cash out and enjoy some downtime before liquidity conditions potentially improve again in the latter half of the year. In a predictable fashion, similar to many years past, he suggests that it will be wise to sell towards the end of the first quarter’s closing stages.

At press time, Bitcoin traded at $101,344.

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2025-01-08 01:35