Arthur Hayes Explains Why Fed Rate Cuts Aren’t Helping Bitcoin

Article by Martin Young

Arthur Hayes, co-founder and former CEO of BitMEX, has shared his theory of why interest rate cuts by the United States Federal Reserve may not do much for Bitcoin prices.

In a post on X on Sept. 2, the Maelstrom chief investment officer said that despite Federal Reserve Chair Jerome Powell all but confirming a rate cut in September at his Jackson Hole speech on Aug. 23, Bitcoin prices have struggled and declined since.

Since the speech, BTC prices briefly spiked to $64,000 before falling 10% to a low of $57,400 on Sept. 2. It has recovered slightly to trade at $59,238 at the time of writing on Sept. 3. 

Giving his take on why, Hayes pointed to reverse repurchase agreements (RRPs) — the sale of securities with the agreement to repurchase them at a higher price at a specific future date — noting that they are paying 5.3% interest.

This is higher than Treasury bills — short-term government debt obligations — which pay lower yields of 4.38%.

As a result, large money market funds are taking their cash out of Treasury bills and putting it into RRPs instead, resulting in less money floating around in the market for risk-on assets such as crypto, explained Hayes.

X account “ELI5 of TLDR” explained that the RRP program can act like overnight parking for big banks and money managers to park their cash.

They explained that it is also paying more than other safe investments, so capital stays in the “parking lot” instead of flowing through the economy.

Since the Fed announced the probable September rate cut, an additional $120 billion went into reverse repurchase agreements, Hayes noted. 

Hayes highlighted that the development goes against the assumption that lower interest rates are good for high-risk assets such as Bitcoin 

.Many believe that low interest rates encourage borrowing and spending, which leads to more liquidity in markets as safer, interest-bearing accounts are no longer as attractive, while a weaker dollar can make BTC appear stronger. 

According to the CME Fed Watch tool, there is a 69% chance of a 25 basis point cut and a 31% chance of a 50 basis point cut at the Fed’s Sept. 18 meeting. 

A larger rate cut would signal a more aggressive stance by the Fed, potentially leading to a more dramatic market response and a bigger boost to economic activity.