Arthur Hayes Expects Bitcoin Weakness Until Fed And Banks Start Growing Balance Sheets

What happened

Arthur Hayes said he expects Bitcoin to stay weak until the Federal Reserve or banks start expanding their balance sheets, which means growing the total money and assets they hold. He shared a chart of a dollar liquidity gauge that had slipped from its recent high.

Confirmed

Global impact / market context

When the Fed or banks grow their balance sheets, more cash typically becomes available for investors to buy risk assets like Bitcoin. Right now the Fed's balance sheet is shrinking, which removes cash and can weigh on Bitcoin's price.

Analyst inference

The Fed's total assets fell to over $6.746 trillion on Oct. 28 from about $6.756 trillion on Oct. 14. Reserve balances dropped while the Treasury's cash account rose, pulling cash out of the banking system.

Analyst inference

What to watch

1. Watch the Fed's weekly H.4.1 release for changes in total assets and reserve balances, since those figures show whether the balance sheet is growing or shrinking. Confirmed
2. Hayes suggests waiting for the Fed or banks to start growing their balance sheets before expecting Bitcoin strength, so watch for a turn from shrinking to expanding. Proposed
3. Watch the Treasury's cash account at the Fed, because money moving into that account pulls cash out of the banking system and can reduce funds available for risk assets. Analyst inference

Affected assets

• BTC — Bitcoin

Evidence

• stocktwits.com