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Arthur Hayes Explains Why Fed Rate Cuts Aren’t Boosting Bitcoin

Arthur Hayes, co-founder of BitMEX, has shared his insights on why Federal Reserve rate cuts may not be helping Bitcoin prices. Hayes points to the shift of money into higher-yielding reverse repurchase agreements (RRPs) rather than riskier assets, such as Bitcoin, as a key reason for the cryptocurrency’s recent struggles.

• Main Points:

  • Reverse Repo Shift: Money market funds are moving cash into RRPs, which offer higher yields than Treasury bills, reducing liquidity for risk assets.

  • Bitcoin’s Decline: Since Fed Chair Jerome Powell hinted at a rate cut, Bitcoin briefly spiked to $64,000 but then dropped by 10% to $57,400.

  • Interest Rate Dynamics: Lower interest rates typically boost risk assets, but the shift into RRPs is counteracting this effect for Bitcoin.

  • Market Outlook: With a 69% chance of a 25 basis point cut in September, a more aggressive rate cut could lead to a stronger market reaction.

• Detailed Insights:

  • Reverse Repo Shift: In a post on X on September 2, Arthur Hayes explained that money flow has shifted from Treasury bills, which yield 4.38%, into reverse repurchase agreements (RRPs), offering 5.3% interest. This shift is drawing liquidity away from riskier assets like Bitcoin. RRPs, essentially a form of secured lending, allow large money market funds to park cash temporarily while earning a higher yield than other safe investments. This “parking lot” effect keeps capital from circulating through the broader economy, limiting the potential positive impact of lower interest rates on assets like Bitcoin.

  • Bitcoin’s Decline: Following Powell’s speech at Jackson Hole, where he signaled a likely rate cut in September, Bitcoin initially surged to $64,000. However, it quickly fell by 10% to $57,400 and has since stabilized around $59,238 as of September 3. Hayes’ analysis suggests that the diversion of funds into RRPs has played a role in this price decline, as less money is available to flow into Bitcoin and other risk-on assets.

  • Interest Rate Dynamics: Traditionally, lower interest rates are seen as bullish for risk assets because they reduce the attractiveness of safer, interest-bearing accounts and increase borrowing and spending, leading to more liquidity in the market. However, the current dynamics with RRPs offering higher yields are counteracting these effects, meaning that even with a rate cut, Bitcoin may not see the expected boost.

  • Market Outlook: According to the CME Fed Watch tool, there is a 69% chance of a 25 basis point rate cut at the Federal Reserve’s September 18 meeting, with a 31% chance of a 50 basis point cut. A larger rate cut could indicate a more aggressive stance by the Fed, potentially leading to a more significant response in financial markets. However, the ongoing trend of funds moving into RRPs could continue to limit the upside for Bitcoin.

Related: 5 Things to Know in Bitcoin This Week

As the market awaits the Fed’s decision, investors should be mindful of the complex factors influencing Bitcoin’s price action, including the interplay between interest rates, reverse repos, and market liquidity.

Bitcoin on the Brink: Breakout or Breakdown? Analysts Weigh In

Bitcoin has been trading in a downtrend between $74,000 and $52,000 for the past seven months, leaving investors uncertain about the next direction. Analysts point to upcoming U.S. political events, macroeconomic data, and potential Fed rate cuts as key factors that could drive Bitcoin’s price action in the coming weeks.

• Main Points:

  • Market in ‘Wait and See’ Mode: The next major move for Bitcoin hinges on how the market responds to upcoming political and regulatory shifts in the U.S., as well as macroeconomic data.

  • Interest Rates and Jobs Data: The Federal Open Market Committee meeting on Sept. 18 is expected to be a significant catalyst, with potential rate cuts being a key factor.

  • Breaking Resistance: Bitcoin needs to break above $65,000 to confirm a reversal, facing resistance between $70,000 and $74,000.

  • September Volatility: Historically, September is the worst month for Bitcoin, with an average return of -4.3% since 2013.

• Detailed Insights:

  • Market in ‘Wait and See’ Mode: Mena Theodorou, co-founder of Coinstash, noted that the market is currently in a "wait and see" mode, with the next major move for Bitcoin likely determined by how the market reacts to upcoming U.S. political and regulatory changes during election season, as well as crucial macroeconomic data.

  • Interest Rates and Jobs Data: EToro market analyst Josh Gilbert highlighted the upcoming Federal Open Market Committee meeting on Sept. 18 as a potential catalyst for Bitcoin's price. With Federal Reserve Chair Jerome Powell expected to cut interest rates by up to 0.525%, this could be a significant positive for risk assets like Bitcoin. U.S. jobs data, set to be released on Sept. 6, will also play a crucial role in shaping market expectations.

  • Breaking Resistance: According to IG Markets analyst Tony Sycamore, Bitcoin will need a sustained break above the $65,000 level to confirm a reversal. If this level is breached, Bitcoin will face a "cluster of resistance" between $70,000 and $74,000 before the market can flip to a positive bias.

  • September Volatility: Historically, September has been a challenging month for Bitcoin, with an average monthly return of -4.3% over the past 11 years. Despite this, Gilbert remains optimistic, citing robust global growth, revised U.S. GDP figures, and potential rate cuts as reasons for a positive outlook.

Related: Bitcoin Whales Influence Market Amidst 1K Token Move

As Bitcoin navigates these critical developments, investors should brace for potential volatility, with the next few weeks likely determining the cryptocurrency’s direction heading into the final quarter of 2024.

Home Invaders Used Machete and Toblerone to Steal Bitcoin in Scotland's First Crypto-Traced Robbery

In a groundbreaking case, Scottish prosecutors seized and converted 23.5 Bitcoin into cash following a 2020 home invasion where three men used a machete and a Toblerone bar to rob a man of his Bitcoin. This marks the first time in Scotland that stolen cryptocurrency was traced and recovered.

• Main Points:

  • Unique Robbery: The robbers used a machete and a Toblerone bar to threaten victims and steal Bitcoin.

  • Crypto Tracing: This case was the first in Scotland to involve the tracing of stolen cryptocurrency.

  • Seized Bitcoin Converted: The 23.5 Bitcoin were seized, converted into cash, and amounted to $144,017.

  • Key Conviction: The “technical brains” behind the crime received a sentence involving unpaid work and supervision.

• Detailed Insights:

  • Unique Robbery: In March 2020, three men broke into a home near Glasgow, armed with a machete and a personalized Toblerone bar. They assaulted a woman and forced a man to transfer his Bitcoin. One of the attackers even made a "throat-slitting gesture" with the bloodied Toblerone before fleeing the scene.

  • Crypto Tracing: This case marks the first time in Scotland that stolen cryptocurrency was successfully traced and recovered. Detective Inspector Craig Potter from Police Scotland’s Cyber Investigations unit highlighted the uniqueness of the case, which involved advanced cyber investigation techniques.

  • Seized Bitcoin Converted: The 23.5 Bitcoin stolen in the robbery were seized from John Ross Rennie, who was identified as the "technical brains" behind the theft. Prosecutors converted the Bitcoin into cash, totaling $144,017 (109,601 British pounds), which reflects Bitcoin's value at the time of the robbery when it was trading at around $5,400.

  • Key Conviction: Rennie, who denied participating in the crime and claimed he was forced to deposit the Bitcoin by a "scary" relative, was convicted of possessing the stolen cryptocurrency. The Edinburgh High Court judge emphasized Rennie’s pivotal role in the theft, sentencing him to 150 hours of unpaid work and a six-month supervision order.

Related: Bitcoin’s Cup and Handle Pattern: Is a $110,000 Breakout on the Horizon?

This case not only highlights the growing intersection of cryptocurrency and crime but also sets a precedent for the successful tracing and recovery of stolen digital assets in Scotland.

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This article is not financial advice. Market conditions can change rapidly, and past performance does not guarantee future results