Bitcoin Danger Zone: Arthur Hayes Predicts $30K Drop Amid Inflation Surge

Bitcoin is poised to experience a decline to $35,000 or below due to emerging global macroeconomic turbulence, as highlighted by Arthur Hayes.

In his most recent blog post titled “Yellen or Talkin'?” dated January 24, the former CEO of the cryptocurrency exchange BitMEX presents a gloomy short-term price forecast for BTC. Although Bitcoin is still 75% higher than a year ago, it confronts a convergence of factors contributing to significant downside volatility in the current quarter.

Hayes identifies various sources of concern, including the conflict in the Red Sea between the United States and the Houthis, impacting global shipping, the ongoing U.S. presidential election, and the policies of the Federal Reserve.

The conflict in the Red Sea has notable implications for inflation. Risk assets, including cryptocurrencies, anticipate a potential shift in Fed policy as early as March, involving reduced interest rates to attract liquidity back into the market.

Despite potential inflation concerns, higher shipping costs could lead to price surges later in the year. Hayes suggests that Federal Reserve Chair Jerome Powell will likely strive to address these issues by emphasizing the possibility of rate cuts without actually implementing them.

“What might be a mild increase in the rate of inflation due to increased shipping costs could be supercharged by rate cuts and the resumption of QE. The market doesn’t appreciate this fact yet, but Bitcoin does.”

Hayes also discusses the U.S. regional banking sector's strength, supported by the Bank Term Funding Program (BTFP) since the March 2023 meltdown. However, with the expiration of the BTFP, questions about liquidity and the financial predicament of banks arise, contingent on the actions of Treasury Secretary Janet Yellen.

The blog post emphasizes that, in the face of a financial crisis, the priority becomes addressing financial stability over fighting inflation.

“That is why, to get the cuts, QT taper, and the possible resumption of QE the market believes is already in the bag come March, we first need a few banks to fail when the BTFP is not renewed.”

In terms of Bitcoin, the blog suggests that impending turmoil related to liquidity concerns and the expiration of the BTFP, coupled with geopolitical risks, indicates that the 20% decline in BTC price is just the beginning.

Hayes predicts a potential 30% correction from the ETF approval high of $48,000 to reach $33,600.

“Therefore, I believe Bitcoin forms support between $30,0000 to $35,000. That is why I purchased 29 March 2024 $35,000 strike puts.”

He concludes that levels below $35,000 now present an opportunity to capitalize on the dip, following BTC/USD hitting $38,500 on Bitstamp on January 23, marking its lowest point since the beginning of December. The cryptocurrency later rebounded around $1,700 higher, according to data from TradingView.