As global financial markets remain highly sensitive to the Federal Reserve's monetary policy direction, legendary trader and BitMEX founder Arthur Hayes has once again made headlines. He recently published a lengthy article boldly predicting that a series of operations by the U.S. Treasury and the Federal Reserve is quietly brewing a "Stealth QE." Hayes believes that this "secret money printing" initiative will become the core catalyst for driving a new bull market in Bitcoin and the entire cryptocurrency market. In the complex backdrop of expanding government spending, foreign central banks abandoning U.S. Treasuries, and domestic savings insufficient to support massive national debt issuance, how will the Federal Reserve inject dollar liquidity into the market through "de facto QE" and ultimately ignite the frenzy in the crypto market?
- Arthur Hayes' "Stealth QE" Warning: Will the Federal Reserve's Secret Money Printer Restart?
Arthur Hayes' core argument is that the U.S. government's fiscal deficit and massive national debt issuance will ultimately force the Federal Reserve to restart quantitative easing (QE) in a less conspicuous manner, thereby increasing dollar liquidity and triggering a Bitcoin bull market.
The Dilemma of Government Spending: The government has only two ways to pay for expenditures: using savings (tax revenue) or borrowing (issuing bonds). Since taxes are unpopular while spending is well-received, politicians tend to favor issuing bonds to secure their current re-election, leaving the debt burden for the future.
The Dilemma of National Debt Issuance: The U.S. government's spending continues to expand, with an expected issuance of about $2 trillion in new debt each year to cover the deficit. However, the main buyers of Treasuries are facing challenges:
Foreign Central Banks: In light of the risks of dollar assets being seized after the Russia-Ukraine war, reserve managers at foreign central banks prefer to buy gold rather than U.S. Treasuries, leading to a surge in gold prices.
The U.S. Private Sector: With a personal savings rate of only 4.6% in 2024, far below the federal deficit's 6% of GDP, the private sector cannot become the marginal buyer of Treasuries.
Commercial Banks: The amount of Treasuries purchased by the four major financial center commercial banks is not sufficient to be the final marginal buyer relative to the Treasury's massive issuance.
Relative Value Hedge Funds' Leverage Operations: Hayes points out that relative value (RV) hedge funds have become the marginal buyers of Treasuries. They leverage financing through repurchase agreements (repo) to buy Treasuries, earning a slim spread.
- SRF: The Key Tool for the Federal Reserve's "De Facto QE"
When market liquidity tightens and the SOFR (Secured Overnight Financing Rate) exceeds the federal funds rate ceiling, the Federal Reserve injects cash directly into the market through the Standing Repo Facility (SRF).
SOFR and Cash Tightness: SOFR is an indicator of key currency market interest rates in dollars. If SOFR is above the federal funds rate ceiling, it indicates cash tightness, which could lead to a collapse of the fiat currency financial system.
The Operation Mechanism of SRF: The SRF allows eligible financial institutions (such as commercial banks) to pledge eligible securities (mainly Treasuries) and receive unlimited cash from the Federal Reserve. This is essentially the Federal Reserve printing money and then exchanging the printed currency for the pledged securities.
Stealth QE: If the SRF balance is greater than zero, it means the Federal Reserve is cashing the politicians' checks through money printing. This method of increasing bank reserves through SRF rather than traditional quantitative easing is referred to by Hayes as "Stealth QE."
- The "Invisible Catalyst" for the Bitcoin Bull Market: Dollar Liquidity and the Crypto Market
Hayes predicts that as the usage of SRF increases, global dollar liquidity will rise, effectively equivalent to QE, reigniting the bull market cycle for Bitcoin and the crypto market.
Historical Patterns: "Whenever the Federal Reserve expands its balance sheet, BTC goes up." Hayes emphasizes the historical correlation between the expansion of the Federal Reserve's balance sheet and the rise in Bitcoin prices.
Increase in Dollar Supply: If government borrowing continues to grow, the Federal Reserve's balance sheet will also expand, thereby increasing dollar liquidity and ultimately driving up the prices of Bitcoin and other cryptocurrencies.
- Market Outlook and Investment Strategy: Waiting for Opportunities Amid Volatility
Currently, the U.S. government shutdown and the period of Treasury auctions are tightening liquidity in the short term, putting pressure on the crypto market.
Volatility Expectations: Hayes advises investors to "preserve capital and wait for opportunities," stating that the market will experience a strong rebound after the "Stealth QE" is initiated.
Misreading Market Weakness: Given that the four-year cycle following Bitcoin's historic high in 2021 is approaching, many may mistakenly believe that this period of market weakness and stagnation has peaked and sell their cryptocurrencies.
The Operation Mechanism of the Dollar Money Market: Hayes emphasizes that the operation mechanism of the dollar money market does not lie. This market area is filled with obscure terminology, but once you translate these terms into money printing or currency destruction, it becomes easy to understand how it operates.
Conclusion:
Arthur Hayes' "Stealth QE" theory provides a unique macro perspective on the current trends in the Bitcoin market. He believes that the U.S. government's massive debt and the Federal Reserve's liquidity injections through SRF will inevitably lead to an increase in dollar supply, thereby igniting the next Bitcoin bull market. Although the market may experience volatility in the short term due to the government shutdown and tightening liquidity, Hayes advises investors to remain patient, preserve capital, and wait for a strong rebound after the initiation of "Stealth QE."
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Original Article: “Arthur Hayes Warns of Stealth QE Restart, Federal Reserve's Secret Money Printing May Ignite Next Bitcoin (BTC) Bull Market”
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