According to Arthur Hayes, co-founder of the BitMEX crypto exchange, the cryptocurrency market is poised to enter a “up-only” phase once the U.S. Treasury achieves its objective of filling the General Account (TGA) to $850 billion. As of Friday, the Treasury’s account balance had already surpassed $807 billion, signaling that the goal is within reach.
Hayes noted that the completion of this liquidity drain could pave the way for renewed capital flow into the markets. He explained that when the Treasury is accumulating funds in its General Account, these assets are usually withheld from circulation in private markets, limiting liquidity. “With this liquidity drain complete, up only can resume,” Hayes stated in his analysis.
However, Hayes’ assertion is not without its critics. André Dragosch, the European head of research at investment firm Bitwise, echoed skepticism about the correlation between net liquidity and the performance of cryptocurrencies. “Net liquidity has a loose correlation to Bitcoin and crypto at best; I think that is a useless banana in my view,” Dragosch remarked, suggesting the connection is not as straightforward as some might believe.
The current market sentiment among many crypto consumers and traders leans toward a potential increase in liquidity in the forthcoming months. This aligns with widespread expectations that the Federal Reserve will soon initiate a cycle of interest rate cuts, aimed at stimulating asset prices until liquidity conditions tighten again.
This sentiment was amplified recently when the U.S. Federal Reserve cut interest rates for the first time since 2024, marking a reduction of 25 basis points (BPS), or a quarter of a percent. However, Bitcoin (BTC) reacted negatively to the news, dropping below $115,000 in the immediate aftermath, a typical behavior described as a “sell-the-news” event.
In light of these developments, Nic Puckrin, founder of the education and media platform Coin Bureau, cautioned investors about a possible short-term downturn in the market, arguing that the interest rate cut may have already been priced in by traders before the Fed’s announcement.
Federal Reserve Chairman Jerome Powell mentioned that the Federal Open Market Committee (FOMC) remains conflicted over future rate cuts. Nevertheless, the sentiment surrounding potential cuts persists, with 91.9% of traders now expecting the FOMC to implement another reduction of up to 50 BPS during their upcoming meeting in October, according to data from the Chicago Mercantile Exchange (CME) Group.
The CME Group is well-known for managing significant financial derivatives exchanges, including various futures markets, providing critical insights into trader expectations regarding monetary policy shifts.
As the landscape continues to evolve, many in the crypto community are closely observing these fiscal shifts and their potential impact on market dynamics. While Hayes advocates for the optimistic view of an incoming liquidity surge, analysts like Dragosch remind investors to approach these developments with caution.
