BitMEX Founder: The market will peak in mid-March 2025

Arthur Hayes, founder of BitMEX, gave an in-depth analysis of the factors affecting global financial markets, especially crypto, in the context of early 2025.

His article highlights the relationship between dollar liquidity and Bitcoin's price volatility, and assesses the political and economic factors that can impact market trends.

At the beginning of the article, Hayes likens the dangers of skiing when snow does not cover Hokkaido's “saka” bamboo to the risks in the market when liquidity is insufficient to support asset prices.

He pointed out that, just as heavy snow in Hokkaido helped open ski gates earlier than usual, dollar liquidity flows are playing a decisive role for the crypto market.

Bitcoin bottomed out in Q3-2022 when the FED's Reverse Repo Facility (RRP) * peaked. Under the direction of Janet Yellen, the US Treasury Secretary, the issuance of multiple short-term bonds (T-bills) withdrew more than $2,000 billion from the RRP, injecting liquidity into global financial markets.

Reverse Repo Facility (RRP) is the Fed's tool used to control money in the financial system. The FED borrows money from financial institutions (such as banks, monetary funds) by selling them government bonds, and then committing to repurchase them at a higher price (plus interest) in the future.

This led to a boom in crypto and stocks, especially big tech stocks. The chart Hayes uses clearly illustrates the inverse relationship between Bitcoin and RRP: when RRP falls, Bitcoin rises.

Hayes predicts that in Q1-2025, the Fed will continue its quantitative tightening (QT) program, withdrawing $180 billion of liquidity from the market.

However, the change in the interest rate of the RRP in December 2024 will encourage money market funds to withdraw money from the RRP to buy T-bills, injecting an additional $237 billion in liquidity. In total, there will be $57 billion of net liquidity injected into the system.

He stressed that the Fed would try to keep 10-year bond yields below 5 percent to avoid large swings in the market. When temporary measures such as RRP and TGA run dry, the Fed may have to return to its quantitative easing (QE) program, which increases global liquidity.

According to Hayes, the US Treasury Department, under the leadership of Janet Yellen, is expected to use special measures to fund the government from mid-January 2025. Since Congress has not raised the debt ceiling, the Treasury Department will have to use money from the TGA account, with a current balance of $722 billion. This is a positive factor for USD liquidity in the short term.

However, Hayes predicts that by around May or June, when the TGA is exhausted, Congress will be forced to raise the debt ceiling to avoid default or a government shutdown. At that time, the Treasury will need to issue more new debt and replenish the TGA balance, which will reduce USD liquidity.

Hayes concluded that, with positive USD liquidity inflows reaching $612 billion in Q1 2025, the crypto and risk asset markets will continue to grow.

However, he predicts that a local peak of Bitcoin will occur by the end of Q1, similar to 2024. After that, the market may adjust to pressure from factors such as the debt ceiling and the April tax payment deadline.

As Chief Investment Officer at Maelstrom, Hayes said he encouraged the fund to increase risk by investing in the Decentralized Science (DesCI) sector, with tokens such as BIO, VITA, and NEURON.

While recognizing that predicting the market is a challenge, he stressed the importance of being flexible and willing to change strategies based on new information.