Arthur Hayes, the co-founder and former CEO of BitMEX who now manages a family office named Maelstrom, said he expects bitcoin to rally back to $60,000, then range between $60,000 and $70,000 until August.

In a blog post early Friday, Hayes said the slow addition of billions of dollars of liquidity each month would dampen negative price movements going forward, reversing the common sentiment on the seasonality of markets by suggesting “buy in May, go away.”

Hayes argues that recent Federal Reserve and U.S. Treasury policy announcements are “stealth forms of money printing,” and while the crypto market won’t pick up on this immediately, he expects prices to “bottom, chop and begin a slow grind higher.”

Bitcoin BTC +1.99% fell to a low of $56,500 on Wednesday — a 23% drop from an all-time high of $73,836 set on March 14. It is currently trading for $59,568, according to The Block’s price page.

BTC/USD price chart. Image: The Block/TradingView.

In January, Hayes suggested the crypto market could see a significant correction in March, citing colliding macroeconomic factors.

“The price action played out as I expected,” Hayes said on Friday. “U.S. tax season, consternation over what the Fed will do, the Bitcoin halving sell the news event and a slowdown of U.S. Bitcoin ETF asset under management (AUM) growth coalesced over the prior fortnight to produce a well-needed market cleansing.”

Improving liquidity conditions

Explaining his rationale, Hayes pointed out the Fed’s announcement this week that it would reduce the rate of quantitative tightening — a tool used by central banks to decrease the amount of money circulating in the economy — from $95 billion to $60 billion per month, essentially adding $35 billion per month of dollar liquidity.

“‘High’ interest rates, which require the Fed and U.S. Treasury to hand out interest payment stimmies to rich folks, coupled with a reduction in the pace of QT, are even more stimulative,” Hayes said.

Additionally, Hayes noted the US Treasury’s recent quarterly refunding announcement, highlighting the quantity and type of debt issuance required to fund the government. 

Over the next two quarters, the U.S. Treasury intends to borrow more money than previously estimated while reducing the Treasury General Account (the primary checking account of the U.S. government) by around $90 billion from today’s level. It also intends to increase the issuance of short-dated bills (draining the Reverse Repurchase Program). The combined impact of which is also positive for liquidity, albeit mildly, Hayes said.

Then there are the "not-too-big-to-fail banks." The closure of Republic First Bank last month became the first U.S. bank failure this year, to be acquired by Fulton Bank.

Fulton agreed on the acquisition only if the Federal Deposit Insurance Corporation (FDIC) gave it $667 million so that all Republic First depositors could be made whole, Hayes said. “Why is the insurance fund being used for all deposits when some deposits were not insured? The reason is that if all deposits weren’t covered, then a bank run would start. That is not a good look in a democratic republic with elections every two years,” he added. 

Ahead of a U.S. election in November, Hayes suggested the government would effectively guarantee all deposits in the U.S. banking system. “That is a stealth addition of $6.7 trillion, as this is the amount of uninsured deposits as reported by the St. Louis Fed,” he said.

“This leads to money printing because the FDIC’s insurance fund doesn’t have $6.7 trillion. Maybe they need to ask CZ for advice because funds ain’t SAFU. Once the fund is exhausted, the FDIC will borrow money from the Fed, which will print money to satisfy the loan,” he added.