The former CEO of a crypto exchange weighs in on the state of the economy after the Federal Reserve recently announced that it has no plans to cut interest rates any time soon.
In a series of tweets, BitMEX co-founder Arthur Hayes makes assumptions how the Fed might be able to reduce the assets and liabilities on its balance sheet while urging the stock market to rally.
“Let’s play a little game called ‘Hide these treasures.’
The rules:
The Fed is reducing its balance sheet, negative dollar liquidity.
The US Treasury issues bonds to pay for large and growing budget expenditures as dollar liquidity is negative.
But we want the stonks to pump, what to do?
Hayes said foreign investors or the Fed itself are unlikely to buy the US Treasuries which he says will be used to send another round of stimulus checks before the upcoming midterm elections. He think that the banks could buy the treasury bills and then take advantage of the leverage, which would drive stocks higher.
“What if US banks could buy Treasury bonds and then return them to the Fed in exchange for dollars?
Then the banks take those dollars and mine them in the financial markets. Net result, more cash in dollars, pump of stonks! yay.”
The Crypto Veteran adds that while banks and the Fed may not want to buy bonds directly because of balance sheet liabilities, together they can utilize the Fed’s Standing Repo Facility (SRF) policy, which allows the Fed to buy and sell securities overnight, to achieve common goals.
“Every night the Fed accepts Treasury bills from banks and gives them new dollars.
Banks are unaffected by capital charges and get very cheap dollar liquidity that can be leveraged in the financial economy… [then] stone pump.
Hayes said the New York Fed will perform a “test” related to the SRF in September, which has the capacity to manage 500 billion dollars, then adds,
“Is the Fed going to activate it? I do not know. But we should keep an eye on it, which is why I added it to my US dollar liquidity index.
The SRF is a great way to soak up the Treasury shows needed for the pre-election stimmiez.
The crypto entrepreneur concludes his tweetstorm by to suggest rather than worrying about interest rates, people need to monitor how much quantitative tightening is actually draining liquidity from the Fed’s balance sheet.
Hayes think whether or not the Fed bet succeeds will determine whether Bitcoin (BTC) recovers or continues to decline.
“Dollar liquidity numbers are growing, stonks and BTC pump.
The dollar cash count is falling, stonks and BTC are pouring out.
You might as well throw away all those useless economics textbooks that talk about income and other nonsense.
At the time of writing, Bitcoin is up 1.57% on the day and valued at $20,145.
Don’t miss a beat – Subscribe to receive crypto email alerts straight to your inbox
Check Price Action
follow us on TwitterFacebook and Telegram
Surf the Daily Hodl Mix
 
Disclaimer: Opinions expressed on The Daily Hodl are not investment advice. Investors should do their due diligence before making high-risk investments in Bitcoin, cryptocurrency or digital assets. Please note that your transfers and transactions are at your own risk and any loss you may incur is your responsibility. The Daily Hodl does not recommend the buying or selling of cryptocurrencies or digital assets, nor is The Daily Hodl an investment adviser. Please note that The Daily Hodl engages in affiliate marketing.
Featured Image: Shutterstock/Amin Zeinoddini/Sensvector