Bitcoin Rally Fuelled by Coming Liquidity Boom

Arthur Hayes predicts that Bitcoin's price rally will continue due to increased dollar liquidity. According to Hayes, US Treasury Secretary Scott Bessent is preparing to create more dollar liquidity through Treasury market operations.

Hayes argues that when policymakers inject liquidity to keep Treasury yields under control, Bitcoin and other risk assets tend to benefit. He points out that in 2023, Yellen boosted the issuance of Treasury bills compared to long-duration Treasury bonds, allowing money market fund balances to move from the Fed's Reserve Repo program to T-bills.

Hayes estimates that the RRP balance fell from roughly $2.5 trillion to $100 billion by the time Bessent took office in January 2025, resulting in a liquidity injection of $2.4 trillion into financial markets. Bitcoin and the Nasdaq 100 both rallied during this period while the 10-year yield moved away from 5%.

Bessent is now attempting something similar through the Treasury's debt-management tools. He announced that buybacks would increase from $2 billion to at least $4 billion per operation, which caused a temporary drop in the 10-year yield and a rally in Bitcoin. However, the effect did not last.

Hayes expects more liquidity due to Bessent's planned purchases, which he believes are too small relative to the roughly $40 trillion US debt stock. He also sees another possible source of liquidity in the Treasury General Account (TGA), which is at approximately $1 trillion.