Bitcoin [BTC] has experienced a slight decline of 4% in less than a week into September, dropping from $59.8k to just above $56k currently. Many analysts have anticipated potential Federal Reserve interest rate cuts in September as a factor that could impact BTC and the broader risk market.
Despite expectations of a Federal Reserve rate cut on the 18th of September, BitMEX founder Arthur Hayes believes that short-term weakness may continue for Bitcoin.
Hayes suggests that BTC may either fluctuate around current levels or decline towards $50K as financial institutions divert liquidity to the Fed’s Reverse Repurchase Agreement (RRP) in pursuit of higher yields. According to his recent analysis,
‘As a result, RRP balances are likely to increase, potentially causing Bitcoin to trade sideways or decrease towards $50,000.’
The RRP plays a crucial role in Federal Reserve monetary policy, particularly in managing money supply and short-term interest rates. A significant rise in RRP could impact U.S. liquidity levels and vice versa.
Uncertainty on a Macro Scale for BTC?
Initially, Hayes suggested that the U.S. might boost Treasury bill issuance by more than $300 billion, injecting necessary liquidity and potentially benefiting BTC. However, he recently observed an increase in RRP in comparison to T-bill issuance, which could have a negative impact on U.S. liquidity.
‘If the Fed refrains from lowering rates before the September meeting, T-bill yields are expected to remain below RRP yields.’
Historically, BTC has shown a positive correlation with U.S. liquidity. Therefore, the potential liquidity crunch mentioned earlier may present short-term challenges for the digital asset.
Despite his current bearish BTC stance, Hayes maintains that this weakness is temporary and views it as a buying opportunity.
‘My change in perspective has me considering hitting the Buy button. I’m holding onto my crypto holdings as I am bearish in the short term.’
While September has typically been a weak month for Bitcoin, QCP Capital anticipates a potential upturn for the crypto in October.
‘October has historically shown strong bullish tendencies, with Bitcoin demonstrating positive performance and an average increase of 22.9% in 8 out of the last 9 Octobers.’
Currently, the crypto Fear and Greed index is signaling a sentiment of ‘fear’ with a reading of 27. The derivatives market also reflects predominantly bearish sentiment, indicated by the negative Taker Buy Sell Ratio.
This trend suggests that sellers are currently dominating buyers, highlighting the prevailing weak sentiment in the market.