Here’s Why Arthur Hayes Warns of Pre and Post-Halving Slump for Bitcoin’s Price

As the cryptocurrency community gears up for the highly anticipated Bitcoin halving around April 20, opinions are divided on its immediate and long-term impact.

In a recent blog post, Arthur Hayes expressed his belief that while the halving might eventually pump prices in the medium term, the asset could slump both before and after the event.

Unexpected Market Movements

He emphasized that while the halving is often viewed as a bullish catalyst, the consensus around its positive impact could lead to unexpected market movements. “When most market participants agree on a certain outcome, the opposite usually occurs,” he stated.

Hayes pointed out that the halving coincides with a period when “dollar liquidity is tighter than usual,” noting that this could increase market volatility.

According to his analysis, reducing block rewards for miners and tighter dollar liquidity could result in a “firesale” of crypto assets, driving prices downward.

In anticipation of these potential market movements, Hayes revealed his decision to abstain from trading until May, emphasizing the need to exercise caution in such uncertain times. He disclosed that he had already taken full profits on several positions, reallocating the proceeds into stablecoin-based investments to earn yields.

While acknowledging the possibility of being proven wrong by the market’s resilience, Hayes remained steadfast in prioritizing risk management over speculative gains. He emphasized the importance of avoiding losses and maintaining a balanced portfolio amid the ongoing market volatility.

Federal Reserve and Treasury Impact on Markets

Hayes also delved into the implications of Federal Reserve and Treasury policies on financial markets. He spoke of the mechanisms through which troubled banks can access liquidity through facilities like the discount window, shedding light on the implications of this on market stability.

Discount windows allow banks to pledge eligible securities, primarily U.S. Treasuries (UST) and mortgage-backed securities (MBS), in exchange for cash from the Fed.

According to him, the Fed and Treasury are shifting their policy direction to encourage bankrupt banks to use the discount window to avoid bankruptcy.

He noted an inconsistency between the previous bailout program (BTFP) and the discount window. While the BTFP restored solvency by reimbursing losses, the discount window only provides cash equivalent to the market value of securities.

He argued that the Fed could equalize treatment between the two mechanisms, effectively continuing a “stealth banking bailout” by supporting bankrupt banks with printed money.

By doing this, the Fed could increase the balance sheets of bankrupt banks, preventing market-induced bankruptcies post-BTFP expiration.