- Fed Chair Jerome Powell hinted strong signals towards a rate decrease earlier.
- To illustrate his argument, Hayes used reverse repurchase agreements (RRPs).
According to BitMEX co-founder and former CEO Arthur Hayes, Bitcoin prices may not react positively to interest rate reduction from the Federal Reserve.
According to a post by the Maelstrom chief investment officer on X on September 2, Bitcoin values have been struggling and declining since Federal Reserve Chair Jerome Powell hinted strong signals towards a rate decrease in September during his Jackson Hole address on August 23.
Bitcoin prices hit a 6-week high of $64,000 after the speech, before tumbling 10% to a 2-week low of $57,400 on September 2. As of this writing on September 3, it has made a little recovery and is trading at $57,881.
Investors Banking on RRPs
To illustrate his argument, Hayes used reverse repurchase agreements (RRPs), in which the buyer agrees to buy back the assets from the seller at a later date at a higher price, while also paying an interest rate of 5.3%.
This return is greater than the 4.38 percent offered by short-term government debt obligations, known as Treasury bills. Large money market funds are shifting their holdings from Treasury bills to RRPs, which means there is less capital available for riskier assets like cryptocurrency, as Hayes highlighted.
According to X account “ELI5 of TLDR,” large banks and money managers may use the RRP scheme as a safe haven for their wealth. Capital remains in the “parking lot” rather than circulating through the economy, since it pays more than other secure investments, as they said. According to Hayes, an extra $120 billion has been put into reverse repurchase agreements since the Fed revealed the likely September rate decrease.
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