Get ready for potential volatility in the digital assets market. The upcoming halving event for Bitcoin (BTC), the leading cryptocurrency, is expected to bring about a decrease in supply and potentially a surge in price. However, according to Arthur Hayes, a co-founder and former CEO of BitMEX and chief investment officer at Maelstrom, the current bullish narrative may actually lead to a price correction.
In his recent blog post, “Heatwave,” Hayes explains that the idea of the halving being a positive event for crypto prices is already widely accepted. This could open the door for a market correction, defined as a drop in price of at least 10%. The halving, which happens every four years, will reduce the number of bitcoins produced per block from 6.25 to 3.125.
While many analysts have predicted a surge in price following the halving, Hayes argues that the supply slowdown is already priced in and the market could actually see a dip in prices after the event. Bitcoin has already experienced a 65% increase in price this year, reaching new highs above $70,000 well before the halving.
Hayes also points out potential external factors that could contribute to a decrease in crypto prices. U.S. tax payments, due on April 15, and the Federal Reserve’s quantitative tightening policies could lead to a decrease in dollar liquidity, causing a broad-based risk aversion and potentially a “fire sale” of crypto assets. These factors, combined with the halving, could create a precarious period for risky assets from April 15 to May 1.
Hayes expects the Treasury General Account, which holds government funds, to see a significant increase in balance after tax payments are processed on April 15. This could lead to a decrease in dollar liquidity, which typically causes the dollar to appreciate against other currencies and could discourage investors from taking on risky assets like cryptocurrencies.
However, Hayes believes that after May 1, when the Treasury General Account is expected to decrease, there may be a bullish tailwind for risk assets leading up to the U.S. presidential election in November. He advises traders to consider taking a short position in the month of April, as after May 1, the focus will likely return to inflationary policies from the Fed and U.S. Treasury.
In summary, while the halving event may bring about a decrease in supply and potentially a surge in price for Bitcoin, Hayes warns that the current bullish narrative may actually lead to a price correction. External factors such as tax payments and Fed policies may also contribute to potential volatility in the market. Traders may want to consider a short position in April, but anticipate a return to inflationary policies after May 1.
