Original Title: Bitcoin will fluctuate between 60,000 and 70,000 until August
Author: Arthur Hayes
Translation: GaryMa, Wu Blockchain
Since mid-April, some degens have been screaming "Mayday" as they see the continuous decline in the cryptocurrency market.
The price movement is in line with my expectations. The U.S. tax season, concerns about the future policies of the Federal Reserve, the implementation of the Bitcoin halving event, and the slowdown in the growth of the assets under management (AUM) of the U.S. Bitcoin ETF have collectively produced a very necessary market cleansing in the first two weeks. Speculators or short-term investors may choose to temporarily exit the market and observe the situation. We hodlers will continue to hodl and, if possible, accumulate more of our favorite crypto reserve assets, such as Bitcoin and Ethereum, as well as high-beta altcoins like Solana, Dog Wif Hat, and, I have to say, Dogecoin.
This is not a completely perfect global macroeconomic, political, and crypto article. Instead, I want to emphasize why the U.S. Treasury, the Federal Reserve, and the First Republic Bank's rescue actions now and in the near future provide a way to increase fiat currency liquidity. I will quickly review some charts that support my bullish view.
Quantitative Tightening (QT) Reduction = QE
When ordinary investors equate quantitative easing (QE) with money printing and inflation, it spells trouble for the elite. Therefore, they need to change the terms and provide a method for the financial system (tumor) to receive its currency heroin dose. It sounds harmless to reduce the speed of asset reduction under the Federal Reserve's quantitative tightening (QT) plan. But make no mistake—by reducing the speed of QT from $95 billion per month to $60 billion per month, the Federal Reserve actually increases the monthly dollar liquidity by $35 billion. When you combine reserve balance interest, reverse repurchase agreement (RRP) payments, and U.S. Treasury interest payments, the reduction of QT increases the stimulus amount provided to the global asset market each month.
The Federal Reserve announced this week that it will reduce QT at the May 2024 meeting. Let's take a look at the dollar liquidity situation before and after the meeting using a convenient chart.
Please note that the QT item is based on the Federal Reserve's weekly balance sheet report and the actual monthly average reduction amount in 2024. As you can see, the Federal Reserve failed to reach the target of $95 billion per month. This raises the question of whether the target is $60 billion per month and whether the Federal Reserve will also fail to reach this target. Failing to meet the target pace is favorable for dollar liquidity.
"High" interest rates require the Federal Reserve and the U.S. Treasury to pay interest to the rich, and with the slowing of QT, this becomes more stimulating.
This is the purpose on Powell's side of the Federal Reserve, but what about his good partner Yellen?
U.S. Treasury Quarterly Financing Announcement (QRA)
As the United States is in a dominant fiscal position, Yellen's statement is more important than that of any other monetary official. Every quarter, the U.S. Treasury issues the QRA to guide the market on the amount and type of debt that must be issued to fund the government. Before the QRA for the second quarter of 2024, I have some questions:
- Will Yellen borrow more or less than the previous quarter, and why?
- What is the maturity of the debt issued?
- What will be the target balance of the Treasury General Account (TGA)?
Question 1:
In the second quarter of 2024, the Treasury is expected to borrow $243 billion in net market debt held by the private sector, assuming a cash balance of $750 billion at the end of June. The estimated borrowing is $410 billion higher than that announced in January 2024, mainly due to lower cash receipts, partially offset by a higher cash balance at the beginning of the quarter.
This is bad news if you hold Treasury bonds. Supply will increase, and although the U.S. economy and stock market are performing strongly, tax revenues are still not satisfactory. This will accelerate the bond market and cause long-term interest rates to rise sharply. In response, Yellen's response may be some form of yield curve control, and this is when Bitcoin will truly begin to climb to $1 million.
Question 2:
Based on current fiscal forecasts, the Treasury is expected to increase the size of 4-week, 6-week, and 8-week bill auctions in the coming days to ensure that our one-week cash needs are met around the end of May. Then, before the non-withholding and corporate tax payment date on June 15, the Treasury is expected to moderately reduce the size of short-term bill auctions from early to mid-June. Subsequently, throughout July, the Treasury is expected to restore the size of short-term bill auctions to the levels of February and March or close to the peak.
Yellen needs to increase the issuance of short-term bills because the market cannot bear her response at the long end of the yield curve. Another benefit of increasing bills is that it will clear the reverse repurchase agreements (RRP), injecting dollar liquidity into the system.
Question 3:
In the third quarter of 2024, the Treasury is expected to borrow $847 billion in net market debt held by the private sector, assuming a cash balance of $850 billion at the end of September.
The TGA balance target is $850 billion. The current balance is $941 billion, equivalent to a reduction of about $90 billion over the next three months.
The impact of this QRA has a slightly positive effect on dollar liquidity. It is not as sensational as the announcement in November 2023, which caused a surge in bond, stock, and crypto prices. But it will slowly help increase the value of our investments over time.
First Republic Bank
Have you heard of this tiny, crappy bank? I had never heard of it before it collapsed. The collapse of another too big to fail (TBTF) bank is not worth noting. But what is important is to understand the reaction of U.S. monetary officials.
The U.S. government (through the FDIC) insures deposits in any U.S. bank, up to a maximum of $250,000. When a bank fails, uninsured depositors should be left with nothing. However, in an election year, this is politically unacceptable, especially if those in power have been assuring the public that the banking system is healthy.
Here is an excerpt from the FDIC:
As of January 31, 2024, the total assets of Republic Bank were approximately $60 billion, and total deposits were approximately $40 billion. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) associated with the failure of Republic Bank will be $667 million. The FDIC has determined that the acquisition of Republic Bank by Fulton Bank is the least costly resolution to the DIF compared to other alternatives. The DIF is an insurance fund established by Congress in 1933 and managed by the FDIC to protect deposits in national banks.
Explaining what happened in plain language requires understanding the meaning between the lines.
Fulton agreed to acquire First Republic and ensure that all depositors are fully protected, provided that the FDIC provides some cash. The FDIC insurance gave Fulton $667 million so that all depositors of First Republic could be fully protected. Why use insurance funds for all deposits when some are not insured?
The reason is that if all deposits are not covered, the bank will collapse. Any large depositor would immediately move funds to a TBTF bank, which has full government guarantees for all deposits. Subsequently, thousands of banks nationwide would collapse. In the democratic republic that holds elections every two years, this is not a good sign. Once the public knows that the bank's collapse is entirely due to the policies of the Federal Reserve and the U.S. Treasury, some overpaid idiots will have to find real jobs.
Rather than suffer a setback during the election, the authorities have essentially now guaranteed all deposits in the U.S. banking system. This effectively adds $6.7 trillion, as this is the amount of uninsured deposits reported by the Federal Reserve Bank of St. Louis.
This has led to money printing, as the FDIC's insurance fund does not have $6.7 trillion. Perhaps they need to seek advice from CZ, as the funds are not safe. Once the fund is depleted, the FDIC will borrow from the Federal Reserve, which will print money to repay the loan.
Like other implicit money printing policies discussed in this article, there is no large-scale liquidity injection today. But we can now be fully confident that tens of trillions of potential liabilities have been added to the Federal Reserve's balance sheet, which will be financed through money printing.
Buy in May, Hodl and Wait
The gradual addition of tens of billions of dollars in liquidity each month will dampen negative price fluctuations in the future. While I don't expect cryptocurrencies to immediately fully appreciate the inflationary nature of recent U.S. monetary policy announcements, I expect prices to bottom out, fluctuate, and begin a slow upward trend.
With the arrival of the summer in the northern hemisphere, some cryptocurrency investors will feel the vibrancy of the market, and they may feel that they have already gained wealth in advance, so they will spend time in some popular places and enjoy life. Of course, I won't always be watching the Bitcoin market; I can go dancing. The recent intense sell-off has provided an excellent opportunity for me to unlock my USDC and spend synthetic dollars on high-beta junk coins.
I'm going to buy Solana and related dog coins for momentum trading. For longer-term altcoin holdings, I will increase my allocation to Pendle and find other "discount" currencies. I will use the rest of May to increase my positions. Then it's hodl and wait, waiting for the market to realize the inflationary nature of the recent U.S. monetary policy announcements.
For those who need my predictions, here are the key points:
Did Bitcoin hit a local low of about $58,600 earlier this week? Yes.
What is your price prediction? A sharp rise to above $60,000, then the price will fluctuate between $60,000 and $70,000 until August.
Is the recent Federal Reserve and Treasury policy announcement a form of implicit money printing? Yes.
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