Bitcoin Might Not Benefit From Federal Reserve Rate Cuts, Former BitMEX CEO Explains Why

Co-founder and former CEO of BitMEX cryptocurrency exchange, Arthur Hayes, recently took to X to explain why he feels the highly-anticipated interest rate cuts by the US Federal Reserve might not have the expected impact on Bitcoin’s price.

Interest Rate Cuts Not The Silver Bullet For Higher BTC Price

Hayes stated on X that despite the Federal Reserve Chair Jerome Powell virtually confirming the incoming interest rate cuts from September 2024 onwards, Bitcoin price might not behave the way many in the crypto market expect it to.

Since Powell’s Jackson Hole speech on August 23, 2024, Hayes notes that Bitcoin price has been on a steady downward trajectory, tumbling from approximately $64,000 to $58,881 by Sep 3, 2024.

According to the former BitMEX CEO, the incoming interest rate cuts have made reverse repurchase agreements (RRPs) a relatively more attractive investment prospect than treasury bills which attracted significant capital during interest rate hikes beginning in March 2022.

For the uninitiated, RRPs are similar to short-term loans used in money markets, where one party – typically a central bank or a financial institution – sells securities to another party with an agreement to repurchase the same securities at a later date for a higher price. The difference between the sale price and the repurchase price is the interest earned by the purchaser of the securities. 

Currently, RRPs are paying a decent 5.3% interest, making them an attractive and safe avenue for institutions looking to temporarily park their capital. In comparison, 1-year treasury bills are paying 4.38% interest. 

Hayes adds that the delta in interest rates between RRPs and treasury bills is forcing large banks and money market funds to move their capital from treasury bills to RRPs, leaving less liquidity in the market that could be used to buy more risk-on assets such as BTC.

Notably, RRPs have received an injection of an additional $120 billion since the announcement of the probable interest rate cuts from September 2024. Hayes expects this trend to continue as long as treasury bill rates are lower than RRP rates.

Could Bitcoin Halving Play A Key Role In Resuming Bull Market?

Hayes’ explanation runs counter to the widely shared assumption that interest rate cuts help boost the price of risk-on assets such as stocks and digital assets. However, it should be recalled that this year also saw the first Bitcoin halving since 2020.

Historically, Bitcoin has gone on to appreciate in value during its halving years, including in 2020 when the COVID pandemic decimated prices of all risk-on assets early in the year. Several seasoned analysts expect Bitcoin to replicate its post-halving price action, igniting a new bullish momentum that could propel the leading digital asset to new all-time-high prices.

The culmination of interest rate cuts, Bitcoin halving, along with increased institutional interest in Bitcoin exchange-traded-funds (ETFs) in 2024 holds the potential to make for an exciting rest of the year in the crypto industry.