Crypto ready for 'up only' mode once US TGA hits $850B target: Arthur Hayes
News Summary
Arthur Hayes, co-founder of BitMEX, predicts crypto markets will enter an "up only" mode once the United States Treasury General Account (TGA) reaches its $850 billion target. He noted that the TGA's opening balance had already surpassed $807 billion, and funds deposited into the TGA are typically sequestered from private markets. However, André Dragosch, European head of research at Bitwise, expressed skepticism, suggesting that net liquidity has at best a loose correlation to Bitcoin and crypto. Many crypto investors anticipate rising liquidity in the coming months as the US Federal Reserve leans into an interest rate-cutting cycle, which should boost asset prices. Following the Federal Reserve's first 25 basis point rate cut in 2025, Bitcoin (BTC) dipped below $115,000, a classic sell-the-news event. Nic Puckrin, founder of Coin Bureau, warned of a short-term pullback, indicating that markets likely priced in the cut. While Fed Chairman Jerome Powell stated the FOMC remains divided on additional rate cuts in 2025, Chicago Mercantile Exchange (CME) Group data showed 91.9% of traders anticipate the FOMC will cut rates by up to 50 BPS at the next meeting in October.
Background
The United States Treasury General Account (TGA) is the primary bank account of the U.S. government, held by the Treasury Department at the Federal Reserve. When the TGA balance increases, it effectively drains liquidity from the financial system, and conversely, when it decreases, it injects liquidity into the markets. The Federal Reserve (Fed) is the central bank of the U.S., responsible for monetary policy, including setting the federal funds rate to influence economic growth, inflation, and employment. Interest rate cuts are generally viewed as a measure to stimulate the economy and increase market liquidity, potentially benefiting risk assets such as cryptocurrencies and equities.
In-Depth AI Insights
Is the Treasury General Account (TGA) a reliable indicator for crypto liquidity, or are other factors more dominant, especially given the current Trump administration's fiscal tendencies? - Arthur Hayes' TGA thesis has historical merit, where TGA build-ups drain market liquidity. However, attributing an "up only" mode solely to the TGA hitting a specific level might be an oversimplification. - While the TGA represents shifts in fiscal liquidity, the Federal Reserve's monetary policy (rate cuts, quantitative easing/tightening) is often a larger, more potent driver of overall market liquidity. The Trump administration's fiscal spending or tax policies could influence TGA fluctuations, but the Fed's independence in rate decisions remains paramount for broader market liquidity. - The skepticism from Bitwise's André Dragosch highlights the "loose correlation" between net liquidity and crypto, suggesting that broader macroeconomic factors, investor sentiment, and regulatory developments might play an equally, if not more, significant role beyond just TGA levels. What are the broader implications of the Federal Reserve's rate-cutting cycle for risk assets beyond crypto, and what does the FOMC division suggest about future policy predictability? - Rate cuts generally stimulate risk assets by reducing borrowing costs and increasing the present value of future cash flows. This typically benefits equities, corporate bonds, and other asset classes, including real estate. - For cryptocurrencies, a rate-cutting environment lowers the opportunity cost of holding traditional safe assets like the dollar, making higher-risk assets more attractive. Furthermore, lower rates can push investors to seek yield, funneling funds into volatile crypto markets. - The FOMC's division on future rate cuts signals that while cuts have begun, there isn't a unanimous internal view on the economic outlook and inflationary pressures. This divergence could lead to increased uncertainty in future policy communications and potentially trigger market volatility as investors scrutinize every statement from Powell and other officials leading up to each meeting. Considering strong market expectations for further rate cuts in October (CME data) and Bitcoin's 'sell-the-news' reaction to the first cut, how should investors assess short-term market dynamics and potential investment strategies? - The strong market anticipation of further rate cuts suggests that much of the positive news might already be priced in. Bitcoin's dip after the first cut exemplifies the common "buy the rumor, sell the news" phenomenon in crypto markets. - Investors should be wary of potential over-pricing and prepare for short-term volatility. Even if the Fed cuts rates in October as expected, another "sell-the-news" event could occur if the magnitude of the cut or future guidance doesn't meet the market's most optimistic forecasts. - Long-term investors should focus on the sustained impact of the cutting cycle on the macroeconomy and the Fed's balancing act between inflation control and economic growth. For crypto, beyond macro liquidity, technological innovation, ecosystem development, and regulatory clarity are critical long-term value drivers. Short-term traders, however, need to closely monitor CME data, FOMC statements, and key support/resistance levels.