In a bold forecast, BitMEX co-founder Arthur Hayes predicts Bitcoin is poised for a significant rally, potentially reaching $250,000. He asserts that the recent market downturn, seeing Bitcoin dip to $80,000, was not the start of a new bear market but rather the culmination of a liquidity-driven reset, with crucial structural forces now reversing in favor of the digital asset.
The End of the Leveraged ETF Basis Trade
Hayes argues that the much-touted institutional interest in US spot Bitcoin ETFs was largely fueled by a leveraged basis trade. Major financial entities, including prominent holders of BlackRock’s iShares Bitcoin Trust (IBIT) like Brevan Howard and Goldman Sachs, were engaging in an arbitrage strategy: buying IBIT while simultaneously shorting CME Bitcoin futures. This strategy offered annual returns of 7-10%, leveraged against 4% Fed funds. However, the October futures basis collapse triggered a widespread unwinding of these positions. This led to institutional selling of ETFs and covering of futures shorts, flipping net ETF flows from inflows to outflows—a dynamic Hayes believes was misconstrued by retail investors as institutions turning bearish on Bitcoin. He further notes that a second temporary pillar, digital asset treasury companies issuing stock or debt to acquire Bitcoin, also saw its influence wane as new issuance became uneconomic.
Macro Liquidity Shifts Pave the Way for Growth
Beyond these micro-market dynamics, Hayes points to a significant macro shift in US dollar liquidity. His proprietary index, analyzing Federal Reserve balance sheets and commercial bank data, reveals that approximately a trillion dollars of liquidity was drained from dollar money markets from July onwards due to Treasury General Account (TGA) refilling and the Federal Reserve’s quantitative tightening. However, Hayes now contends that both the TGA rebuild and quantitative tightening have largely run their course, with the TGA restored to its target zone and the Fed halting balance sheet runoffs. He foresees a future where liquidity increases, primarily driven by commercial banks facilitating industrial programs, rather than direct central bank intervention. This positive macro environment, combined with the cleansing of leveraged positions, forms the bedrock of his bullish outlook for Bitcoin. Hayes also cautioned against unprepared leveraged trading, labeling the October 10 wipeout as a "harsh lesson" for those seeking quick gains without proper risk management. For now, Hayes’s core thesis remains straightforward: the dominant ETF basis trade is largely concluded, the market's liquidity drain has ended, and excessive leverage has been flushed out. In his view, the macroeconomic tide is decisively turning back in Bitcoin's favor, setting the stage for a substantial price appreciation.
