“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 on Thursday breaking down the Federal Reserve’s new program to protect the banking system – and what it means for Bitcoin. 

The initiative titled the “Bank Term Funding Program” is regarded by Hayes as a “repackaged” form of Yield Curve Control (YCC) that will trigger another bull market for Bitcoin. 

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Hayes began by reviewing the macroeconomic backdrop since 2020, from the period of heavy covid related stimulus to the subsequent tightening of interest rates throughout 2022. The ensuing crunch in financial assets crushed bankers’ bond portfolios, and a higher fed funds rate incentivized a rapid withdrawal of deposits from small banks toward higher-yielding money market funds. 

This forced those smaller banks to sell the US treasury debt and mortgage-backed securities on their balance sheets at a realized loss – something that forced a bank run against Silicon Valley Bank earlier this month. 

To stem contagion surrounding SVB’s collapse, the Federal Reserve bailed out all of the bank’s depositors, and also announced its Bank Term Funding Program (BTFD) to provide liquidity to U.S. banks. 

The program lets any federally insured depository institution use government debt and mortgage-backed securities as collateral to borrow money without limit – with collateral valuation at par value, rather than current market value.

According to Hayes, this implicitly allows $4.4 trillion to be printed into the US economy – even more than COVID stimulus, which was worth $4.189 trillion. “During the COVID money printing episode, Bitcoin rallied from $3k to $69k,” he noted.  

Hayes also predicted that the US dollar is likely to strengthen even further against other currencies since the US has set a precedent of guaranteeing depositor funds within systemically important US banks. Then, to prevent deposits from fleeing banks in other countries, central banks globally will be forced to provide similar depositor guarantees. 

While the Fed’s new program is only slated to last a year, Hayes doesn’t believe the central bank will stand by the March 2024 cutoff date. 

“Given the Fed has no stomach for the free market in which banks fail due to poor management decisions, the Fed can never remove their deposit guarantee,” he wrote. “Long Live BTFP.”

How Bitcoin Moons

Money printing is typically viewed as bullish for all financial assets, including Bitcoin, which experienced a historic rally from March 2020 to November 2021 while the Fed’s benchmark rate was at just 0.25. BTFP, according to Hayes, “ushers in infinite money printing,” which means Bitcoin will rise again. 

It will be a hated rally, however: the media, he argued, will attempt to blame the banking fallout on the crypto industry, and be confounded by how Bitcoin continues to soar despite the carnage in the mainstream financial world. 

Some politicians have even claimed that the government’s closing of the crypto-friendly Signature Bank earlier this month was intended to send a “strong anti-crypto message,” rather than to protect depositors. 

“Instead, what crypto did was once again demonstrate that it is the smoke alarm for the rancid, profligate, fiat-driven Western financial system,” wrote Hayes.