According to Hayes' blog article, Bitcoin may encounter selling pressure in the second half of April because halving's alleged bullish effect is now deeply entrenched. Hayes said U.S. tax payments might drain dollar liquidity from the banking system, causing risk aversion and risk asset fire sales. Prepare for digital asset market suffering.
Bitcoin {{BTC}}, the top cryptocurrency by market value, may experience selling pressure before and after the presumably bullish mining-reward halving on April 20. The chief investment officer of Maelstrom and BitMEX co-founder and former CEO Arthur Hayes said that.
In his last blog article, "Heatwave," Hayes stated that the bullish halve narrative is "well entrenched," allowing for a price correction. Crypto corrections involve a 10% price reduction. Bitcoin has great multimonth rallies after the halving, which slows supply expansion by 50% every four years. The halving will reduce per-block supply to 3.125 BTC from 6.25 BTC.
"The narrative of the halving being positive for crypto prices is well entrenched," Hayes said. "When most market participants agree on an outcome, the opposite generally happens. Thus, I expect Bitcoin and crypto values to fall around the halving." Several analysts believe the supply slowdown is priced in and the market may correct. Bitcoin has risen over 65% this year, setting milestones above $70,000 before the halving.
Taxes to drain liquidity Hayes said that U.S. tax payments due on April 15 and the Federal Reserve's quantitative tightening (QT) measures might restrict dollar liquidity from the market, causing broad-based risk aversion and a crypto asset fire sale around halving.
As dollar liquidity is tighter than usual, the halving will fuel a crypto asset firesale. Hayes said the timing of the halving influences his decision to wait until May to trade. People withdraw cash from bank deposits and market funds to pay taxes, reducing financial system liquidity.
When liquidity dries up, the dollar strengthens against other fiat currencies, and borrowers with dollar-denominated loans pay higher interest rates and reduce exposure to risk assets like cryptocurrencies and technology stocks. Dollar weakness has the opposite effect. The global reserve currency U.S. dollar dominates worldwide trade, non-bank borrowing, and international debt.
Capital gains from flourishing stock markets and interest income from high interest rates could cause large liquidity outflows due to looming tax liabilities. This means the Treasury General Account (TGA) balance will grow considerably in the second half of April. The TGA is the government's Fed operating account for tax revenue, customs duties, securities sales, debt receipts, and government expenses.
TGA balance rises when Treasury gets tax payments. The TGA balance is expected to exceed the present ~$750 billion level when tax payments are processed on April 15th. Hayes: dollar liquidity negative. "The precarious period for risky assets is April 15th to May 1st."
After May 1, Hayes expects Treasury Secretary Janet Yellen will run down the Treasury General Account, cheering risk assets ahead of the November U.S. presidential election. After May 1, QT slows and Yellen cashes cheques to boost asset prices. April is a great month for traders to take a risky short position. Hayes stated that asset inflation caused by Fed and U.S. Treasury financial meddling will resume after May 1st.
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