Arthur Hayes – co-founder of the crypto exchange BitMEX – broke down the macro backdrop to Bitcoin and Ethereum’s latest price pump. 

The former CEO argued that the U.S. Treasury is responsible for the rally, due to upcoming plans to alter the supply of Treasury bills in the market. 

RRPs, T-Bills, and Bitcoin

Both Bitcoin and Ethereum broke out of trading ranges below $20,000 and $1400 respectively for the first time in weeks on Tuesday. The move was largely unexpected, given that crypto was beginning to show signs of low volatility rivaling the British pound.

In a Twitter thread published on Tuesday, Hayes said that the US Treasury is considering alleviating a market shortage of short-term T-bills. These are short-term U.S. government debt obligations – which are widely considered one of the safest forms of debt worldwide. 

Money market funds prefer to store their wealth in this debt – especially during high-yield periods like today. However, the T-bill shortage has made them settle for parking their money in the Federal Reserve’s reverse repurchase (aka reverse repo or RRP) agreements. A reverse repo is an agreement to buy a government security, then sell it back to the issuer at a slightly higher price the next day. 

While RRPs secure yields similar to bonds, they cannot be leveraged by the banking system – unlike treasuries. According to Hayes, if money from RRPs moves into government debt, this can effectively increase the money supply and help “pamp risky financial assets.” 

“RRP balances are slightly down over the last month, but the market is clearly anticipating this buyback operation to push RRP balances much much lower,” added the co-founder.

Cryptocurrencies are among such “risky financial assets,” has shown a tight correlation with the NASDAQ 100 throughout the last few years. Like stocks, Bitcoin reached record highs after the central bank lowered interest rates in 2020. Likewise, it was also the first to collapse as the Fed doubled down on hawkish monetary policy in Q2 2022. 

Hayes clarified that the “buybacks and re-issues” of new treasury bills is yet to occur. “If this is just a trial balloon and it pops, make sure to put on your adult diaper for the reversal,” he said. 

The Return of the Money Printer

Hayes regularly writes at length about his predictions for macro markets, and often includes a bullish Bitcoin spin. There’s one common thread connecting his latest work: a certainty that the fed will be forced to pivot from its hawkish monetary policy.

In a post titled “Contagion” earlier this month, Hayes argued that all central banks will start printing money as chaos ensues in the bond market, and energy policies make living conditions even more difficult. 

“The undeclared WW3 is intensifying…” he wrote. “The situation is putting a strain on the global economy as it is, and the compounding financial effects of a withdrawal of credit from the system are evident.”

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