Arthur Hayes: BTFP is key, bottom feeding BTC, SOL, and meme coins like DOGE

BitMEX co-founder Arthur Hayes, who accurately predicted a 30-40% correction in Bitcoin at the beginning of January, has released another lengthy article "Yellen or Talkin'?". In the article, he mentioned that the recent sharp drop in Bitcoin was not due to GBTC, but rather the bank structured finance program BTFP. He also shared his strategic approach, stating that if BTFP is extended in March, he will bottom fish Bitcoin at 35,000 and buy Solana, along with meme coins WIF and Bonk.

Bitcoin Recent Plunge Not Due to GBTC, But BTFP

Hayes mentioned that the argument for Bitcoin's recent sharp decline being attributed to outflows from the Grayscale Bitcoin Trust (GBTC) is incorrect. When the outflows from GBTC are compared with the inflows from the newly listed spot Bitcoin ETF, the net inflow was $820 million in the six trading days leading up to January 22.

Note: Bloomberg analyst Eric Balchunas' latest data also shows a net inflow of $1 billion over the past seven days.

Hayes believes that the reason for Bitcoin's plunge is due to its anticipation of a liquidity crisis in the USD - the Bank Term Funding Plan (BTFP) set to expire in March will not be extended. However, with the 10-year Treasury yield not falling to the 2% to 3% range, smaller banks still have unrealized losses in their bond portfolios and are not yet profitable. In this scenario, without government support through BTFP, these banks will not survive. This could trigger a minor financial crisis, leading the Fed to start cutting rates, reducing QT, and/or resorting to quantitative easing to restore liquidity.

Hayes' Strategic Approach

The ETF corrected from its approved high of $48,000 by 30% to $33,600. Therefore, Hayes believes that Bitcoin will find support between $30,000 and $35,000. The subsequent actions will depend on whether BTFP will be extended.

Scenario One: No BTFP Extension

Currently, neither Fed Chair Powell nor Treasury Secretary Yellen has mentioned the expiring BTFP in March, which would require banks to repay nearly $200 billion in loans. Therefore, Hayes hedged by purchasing put options with a strike price of $35,000 expiring on 3/29, and also sold positions in Solana and Bonk at a slight loss.

Scenario Two: BTFP Extension

If the BTFP is extended, Hayes will

• Close existing options
• Sell Treasury bonds
• Start buying Bitcoin below $35,000
• Purchase Solana, as well as the meme coins WIF and Bonk

Solana breaks through $120, while meme coins BONK and WIF gain momentum