BitMEX co-founder and crypto essayist Arthur Hayes published a lengthy blog post on Thursday detailing the Federal Reserve’s new plan to protect the banking system and what it means for Bitcoin.
The initiative called the Bank Term Funding Program, which Hayes sees as a "repackaged" form of yield curve control (YCC), will spark another bull run for Bitcoin. Hayes begins by reviewing the macroeconomic backdrop so far in 2020, from the massive COVID-19-related stimulus to the subsequent tightening of interest rates throughout 2022. The ensuing squeeze in financial assets crushed bankers' bond portfolios, and a rise in the federal funds rate spurred rapid withdrawals of deposits at smaller banks into higher-yielding money-market funds.
That forced smaller banks to sell Treasuries and mortgage-backed securities on their balance sheets at real losses forcing one bank to run on Silicon Valley Bank earlier this month.
In an effort to stem the contagion surrounding SVB's collapse, the Fed bailed out all of the bank's depositors and announced its Bank Term Funding Program (BTFD) to provide liquidity to Bank of America. The program allows any federally insured depository institution to borrow unlimited money using government debt and mortgage-backed securities as collateral -- collateral valued at face value, not current market value.
According to Hayes, this implicitly allowed $4.4 trillion to be printed into the U.S. economy even more than the $4.189 trillion worth of COVID stimulus. “Bitcoin went from $3,000 to $69,000 during COVID money printing,” he noted.
Hayes also predicted that the dollar could strengthen further against other currencies as the U.S. sets a precedent for guaranteeing depositors' funds at systemically important U.S. banks. Global central banks would then be forced to provide similar depositor guarantees in order to prevent deposits from fleeing banks in other countries. While the Fed's new program is only slated to last for a year, Hayes doesn't think the central bank will stick with it past the March 2024 deadline.
“Given that the Fed has no appetite for a free market where banks fail due to poor management decisions, the Fed can never cancel its deposit guarantee,” he wrote. “Long live BTFP.” Printing money is generally seen as good for all financial assets, including Bitcoin, which experienced a historic rally between March 2020 and November 2021, while the Fed's benchmark rate was only 0.25. According to Hayes, BTFP "used to print unlimited money", which means that Bitcoin will rise again.
However, it would be a nasty backlash: He thinks the media will try to blame the cryptocurrency industry for the impact of banking and be confused about how bitcoin continues to soar amid the carnage in the mainstream financial world.
Some politicians even claimed that the government’s shutdown of crypto-friendly Signature Bank earlier this month was to send a “strong anti-crypto message,” rather than to protect depositors.
