Arthur Hayes, former CEO of BitMex, suggests that forthcoming policy actions by the US Treasury, led by Secretary Janet Yellen, could wield considerable influence over market liquidity, potentially sparking rallies in both crypto and stocks.
Hayes advocates for a shift in focus away from the Federal Reserve’s policy decisions, directing attention instead to the Treasury’s upcoming actions. He outlines three potential scenarios for Treasury policy following a substantial increase in tax receipts, which have bolstered the Treasury General Account (TGA) by approximately $200 billion.
The first scenario involves halting the issuance of new Treasury bonds and utilizing the TGA balance, injecting roughly $1 trillion into the market. This move could stimulate economic activity by increasing the money supply available for lending and investment, consequently lowering interest rates.
In the second scenario, Hayes proposes a shift toward short-term borrowing via Treasury bills, reducing balances in the Reverse Repurchase Agreement (RRP) facility and providing an additional $400 billion boost in market liquidity. The RRP facility is utilized by the Federal Reserve to manage short-term interest rates and regulate excess bank reserves.
The most dramatic scenario combines the first two, with the Treasury ceasing long-term bond issuances and aggressively depleting TGA and RRP balances, unleashing a total of $1.4 trillion into the financial system.
Hayes emphasizes Yellen’s pivotal role in these potential developments, underscoring the significance of her decisions and their potential impact on market dynamics. He predicts that implementing any of these strategies would likely bolster stock markets and reignite the crypto market’s bullish trend. However, financial analysts express varying opinions on the feasibility and consequences of Hayes’ predictions, with some highlighting potential benefits and others cautioning against unintended repercussions.
As the Treasury’s next quarterly refunding announcement approaches, the financial community remains vigilant for indications of Yellen’s potential utilization of such unconventional strategies. These decisions hold substantial importance as they could establish precedents for the impact of national economic policies on global financial markets.
