What to Expect After Bitcoin’s Recent Bounce: Arthur Hayes

Bitcoin’s weekly rally above $20,000 does not necessarily mean a return of the bull market, according to BitMEX founder Arthur Hayes’ latest analysis.

The former CEO recently outlined a few potential scenarios that will trigger Bitcoin’s next big move – which mostly boils down to how the Fed will act in the short term.

Bitcoin bounce analysis

in average mail Heading “Jumping Castle,” published Thursday, Hayes begins with two theories about what’s really driving bitcoin’s pump from its lows.

The first is that this is a natural bounce from its local low below $16,000 – in which case Bitcoin may continue to trade sideways “until USD liquidity conditions improve”.

Instead, the rally was kicked off by the latest consumer price index report from the Bureau of Labor Statistics, which showed that annual inflation fell to 6.5% in December. According to Hayes, the market may interpret the number as a sign that the Fed will soon “deviate” from its hawkish monetary policy.

Thus, market participants can rush into buying cryptocurrencies while they are cheap, before the central bank opens its liquidity gates. In this case, the market will either return to its previous lows if the Fed does not budge (scenario 2a), or continue to rise if the central bank does indeed reverse course (scenario 2b).

“Obviously we all want to believe we’re heading for scenario 2b,” Hayes wrote. “Having said that, I think we’re really going to run into a combination of scenario 1 and 2a – which makes the itchy trigger finger of ‘buy’ waver a bit.”

The behavior of central banks has already proven to be a major driver behind Bitcoin price movements. The asset soared from $3,000 to $69,000 in 2020 and 2021, when the Federal Reserve’s benchmark interest rate was at an all-time low of just 0.25%. Meanwhile, the rate fell throughout 2022 when the central bank raised that rate above 4% – resulting in Mass layoffs and several Bankruptcies Among the largest crypto companies.

Will the Fed pivot?

Hayes said he does not expect the Fed to return to monetary policy in the Covid era based solely on promising CPI numbers. Instead, Chairman Jerome Powell noted that it “focuses on the interaction between wage growth (hourly wages in the US) and core personal consumption expenditures (Core PCE).

Currently, American hourly wages are rising at roughly the same rate as inflation. This means that the cost of consumer goods can continue to rise as producers continue to raise prices to match those wages, giving the central bank justification to continue raising prices.

Another case the Fed is likely to swing into, according to Hayes, would be a “collapse of part of the US credit market,” leading to a “collapse across a broad range of financial assets,” including cryptocurrencies.

“This scenario is less than ideal because it means that anyone who buys risky assets will now be at risk for massive drops in performance,” explained the co-founder. 2023 could be as bad as 2022 until the Fed changes gears.

The post What to Expect After the Latest Bitcoin Bounce: Arthur Hayes first appeared on CryptoPotato.

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