Former BitMex CEO Arthur Hayes believes the upcoming US Treasury policy actions under Secretary Janet Yellen could significantly influence the liquidity landscape and potentially catalyze rallies for crypto and stocks.
Hayes said the market should stop focusing on the Fed’s policy decisions because the Treasury only has three options for its policy action next week — each of which could potentially inject high levels of liquidity into the markets.
Hayes speculated on several unconventional strategies the Treasury might deploy following a substantial increase in tax receipts that added approximately $200 billion to the Treasury General Account (TGA).
Hayes’ Predictive Scenarios
TGA is the US government’s primary operating account, and its management is crucial for federal spending and broader financial market liquidity. Yellen is scheduled to make the next Treasury refunding announcement in the week of April 29.
Zeroing Out the TGA
Hayes’ first scenario involves the Treasury stopping the issuance of new Treasury bonds and instead using up the TGA balance, effectively injecting about $1 trillion into the market. This could lower interest rates and spur economic activity by increasing the money supply available for lending and investment.
Shift to Treasury Bills
In his second scenario, Hayes suggests a pivot toward short-term borrowing through Treasury bills — reducing the balances held in the Reverse Repurchase Agreement (RRP) facility and providing an additional $400 billion boost in market liquidity. The Federal Reserve uses the RRP to manage short-term interest rates and control excess bank reserves.
Combination Approach
The most dramatic scenario combines the first two, where the Treasury would choose to halt long-term bond issuances and aggressively run down the TGA and RRP balances to unleash a total of $1.4 trillion into the financial system.
Market Effects
Hayes did not mince words, emphasizing the pivotal role of Yellen in these potential developments, describing her as a key player whose decisions should be respected given their possible impact on market forces.
He predicted that implementing any of the three strategies would boost stock markets and precipitate a resurgence in the crypto market — which is already in a bullish phase. However, financial analysts are divided on the feasibility and potential consequences of Hayes’ predictions.
Some echoed his enthusiasm, suggesting that such aggressive liquidity measures could invigorate the markets amidst current economic pressures. In contrast, others cautioned that these moves could lead to unintended consequences, including inflationary pressures or increased market volatility.
As the date for the Treasury’s next quarterly refunding announcement approaches, the financial community remains alert for any signs that Yellen might employ such unorthodox strategies. These decisions are pivotal as they could set precedents for how national economic policies can influence global financial markets in significant ways.