The crypto market has been in a weak state over the last few weeks, with bitcoin (BTC) finally falling below $100,000 on Tuesday. Amid speculations about the end of the bull cycle, trader and market expert Arthur Hayes has identified an event that could reignite the bull run.
According to Hayes, everything is tied to the U.S. government ending its shutdown and releasing liquidity into financial markets.
How the U.S. Government Funds Its Debt
Hayes explained in his article titled “Hallelujah” that if the U.S. government ensures there is ample cash in the financial system, BTC will hit another all-time high (ATH) before this bull cycle ends. The primary reason the government will continually increase its supply of dollars is to maintain its ability to finance borrowing. This is because governments are often inclined to prefer issuing debt over raising taxes to fund their agenda.
As the new administration continues to borrow to finance its agenda, the Federal Reserve’s balance sheet will keep expanding. This positive trend in dollar liquidity will ultimately drive bitcoin and crypto prices to new highs.
The American entrepreneur detailed how different market participants could drive liquidity by purchasing Treasury bills relentlessly. These participants include money market funds, foreign central banks, the Too Big to Fail (TBTF) Banks, commercial banks, and Relative Value Hedge Funds. Invariably, government-issued debt will grow the money supply.
Under normal circumstances, the increasing money supply would have trickled down to the crypto market and kept BTC and other assets afloat. However, the ongoing government shutdown has caused a hitch in that process.
Extra Liquidity to be Released
With the shutdown extending into its second month, the Treasury is borrowing money through its debt auctions but not spending. Hayes revealed that the Treasury General Account is above its $850 billion target by approximately $150 billion. This means that the department is currently maintaining a negative dollar liquidity balance, which will become positive when the shutdown ends and the extra liquidity is released into the markets.
Hayes said to expect a choppy market for as long as the government shutdown lasts, as the liquidity drain is one of the primary reasons for the broader decline. The market expert predicted that many traders will dump their bags during this period of market weakness, but insists that it will be a mistake, as the “dollar money market plumbing” is rarely wrong.