On his newest market analysis titled “Sugar High,” BitMEX founder Arthur Hayes lists four reasons to be bullish on Bitcoin and the broader cryptocurrency market in the final quarter of 2024.

Hayes begins his analysis by metaphorically comparing his ski diet to the fiscal approach of major central banks. He compares quick energy snacks to short-term adjustments in monetary policy, notably interest-rate cuts by the U.S. Federal Reserve, the Bank of England, and the European Central Bank. These cuts, he argues, are like “sugar peaks”—they temporarily boost asset prices but must be balanced by more sustainable financial policies, similar to the “real food” in his analogy.

This key change in monetary policy, following Federal Reserve Chairman Jerome Powell’s announcement at the Jackson Hole Symposium, has sparked a positive market reaction, consistent with Hayes’ predictions. He suggests that the expectation of lower interest rates makes assets priced in fixed-supply fiat currencies, such as Bitcoin, more attractive, which increases their value. He explains: “Investors believe that if money is cheaper, assets priced in fixed-supply fiat dollars should rise. I agree.”

Hayes, however, cautions about the potential risks of unwinding the yen carry trade, which could disrupt markets. He explains that anticipated future rate cuts by the Fed, BOE and ECB could narrow the interest rate differential between those currencies and the yen, posing a risk of destabilizing financial markets.

Hayes argues that if real economic measures, similar to his “real food” ski touring, are not taken by central banks — specifically by expanding balance sheets and engaging in quantitative easing — the market could feel the negative repercussions. “If the dollar-yen exchange rate goes below 140 in the near term, I don’t think they will hesitate to provide the ‘real food’ that dirty fiat markets need to exist,” he adds.

To further strengthen his argument, Hayes cites the resilience of the U.S. economy. He notes that the U.S. has experienced only two quarters of negative real GDP growth since the start of the COVID-19 pandemic, which he argues does not indicate an economy that requires further rate cuts. “Even the latest estimate for real GDP in Q3 2024 is a solid +2.0%. Again, this is not an economy suffering from excessively restrictive interest rates,” Hayes argues.

4 Reasons to Be Bullish on Bitcoin in Q4

This statement questions the Fed’s current trajectory toward lower interest rates, suggesting it may be more politically motivated than economically motivated. In lightweight of this, Hayes offers four key reasons to be bullish on Bitcoin and the broader cryptocurrency market in Q4.

1. Policy of global central banks: Hayes highlights the current trend of major central banks cutting interest rates to boost their economies despite ongoing inflation and growth. “Central banks around the world, currently led by the Fed, are cutting the price of money. The Fed is cutting interest rates while inflation is above its target and the U.S. economy is still growing. The BOE and ECB are likely to continue cutting rates at their upcoming meetings,” Hayes writes.

2. Increased dollar liquidity: The U.S. Treasury, under Secretary Janet Yellen, is set to inject significant liquidity into financial markets by issuing $271 billion in Treasury bills and an additional $30 billion in redemptions. This raise in dollar liquidity, totaling about $301 billion by year-end, is expected to keep financial markets in good shape and could lead to increased flows into Bitcoin and cryptocurrencies as investors seek higher yields.

3. Strategic exploit of the general treasury account: There is about $740 billion in the U.S. Treasury’s General Account (TGA), which Hayes said will be strategically deployed to support market conditions favorable to the current administration. This significant financial maneuverability could further raise market liquidity, indirectly benefiting assets like Bitcoin that thrive in high-liquidity environments.

4. The Bank of Japan’s cautious approach to interest rates: The BOJ’s recent wary stance on a rate hike, especially after seeing the impact of a modest rate hike on July 31, 2024, signals a cautious approach that will carefully consider market reactions. This caution, aimed at avoiding market destabilization, suggests a global environment where central banks may prioritize market stability over tightening, which again bodes well for Bitcoin and cryptocurrencies.

Hayes says the combination of these factors creates fertile ground for Bitcoin to grow. As central banks around the world shift toward policies that raise liquidity and make holding fiat currencies less attractive, Bitcoin stands out as a finite-supply asset that could potentially skyrocket in value.

“Some fear that the Fed’s rate cut is a leading indicator of a recession in the U.S. and, by extension, the developed market. That may be true, but […] They will spin up the money printer and dramatically raise the money supply. This leads to inflation, which can be bad for some types of businesses. But for a constrained supply asset like Bitcoin, it will provide a 2 Da Moon! speed of lightweight travel,” Hayes states.

At the time of going to press, the BTC price was $60,094.

Featured image created with DALL.E, chart from TradingView.com