What to Expect After Bitcoin's Latest Jump: Arthur Hayes

What to Expect After Bitcoin's Latest Jump: Arthur Hayes

Bitcoin's weekly surge above $20,000 doesn't necessarily mean the bull market is back, according to recent analysis from BitMEX co-founder Arthur Hayes.

The former CEO recently detailed some possible scenarios that will trigger Bitcoin's next big move - which mostly boils down to how the Federal Reserve behaves in the near future.

Analyzing the Bitcoin Bounce

In onemedium contributionTitled "Bouncy Castle," published Thursday, Hayes first offered two theories about what is actually driving Bitcoin's pump from its lows.

The first is that this is a natural bounce from its local low below $16,000 – in which case Bitcoin could continue to trade sideways “until USD liquidity conditions improve.”

Alternatively, the rally was sparked by the Bureau of Labor Statistics' latest CPI report, which showed annual inflation fell to 6.5% in December. According to Hayes, the market could interpret the number as a sign that the US Federal Reserve will soon “shift away” from its restrictive monetary policy.

Therefore, market participants may rush to buy crypto while it is cheap before the central bank opens its liquidity floodgates. In this case, the market will either return to its previous lows if the Fed does not reverse course (Scenario 2A), or continue to recover if the central bank actually reverses course (Scenario 2B).

“Obviously we all want to believe that we are heading towards Scenario 2B,” Hayes wrote. “That said, I think we are actually faced with a combination of Scenarios 1 and 2A – which gives my itchy “buy” trigger finger some hesitation.”

Central bank behavior has already proven to be a key driver of Bitcoin price movements. The asset rose from $3,000 to $69,000 in 2020 and 2021 when the Federal Reserve's interest rate was at a historic low of just 0.25%. Meanwhile, the price plunged throughout 2022 as the central bank raised that rate to over 4% - triggeringMass layoffsand severalbankruptciesone of the largest crypto companies.

Will the Fed change course?

Hayes said he doesn't expect the Fed to return to its Covid-era monetary policy based solely on promising CPI numbers. Rather, Chairman Jerome Powell has indicated that he is “focused on the interplay between wage growth (US hourly earnings) and personal consumption expenditure (core PCE).

Currently, US hourly wages are rising at about the same pace as inflation. That means the cost of consumer goods could continue to rise as manufacturers continue to raise prices to match those wages, giving the central bank justification to keep raising interest rates.

Another more plausible case for Fed pivoting, according to Hayes, is if “a portion of the U.S. credit market collapses,” leading to a “meltdown across a broad swath of financial assets,” including crypto.

“This scenario is less than ideal because it would mean that anyone buying risky assets now would face massive performance losses,” the co-founder explained. “2023 could be just as bad as 2022 until the Fed changes course.”

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