Arthur Hayes Talks about BTC and SPX Post U.S. BTC ETF Launch

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Arthur Hayes, the co-founder of BitMEX, recently sparks discussion with his January 22, 2024 tweet questioning why Bitcoin (BTC) and the S&P 500 (SPX) have stopped moving in tandem since the launch of the BTC ETF in the US. His inquiry points to a deeper analysis of market dynamics, liquidity concerns and future projections for these asset classes.

Split BTC and SPX

Hayes’ tweet highlights a notable shift in the correlation between Bitcoin and the S&P 500, a trend that has been evident since the launch of the US Bitcoin ETF. Traditionally, BTC and SPX have shown some degree of correlation, often moving together in response to global economic trends and liquidity inflows. However, Hayes points out that this parallel movement has ceased, raising questions about the root causes and their consequences.

Bitcoin ETF: A Turning Point

The launch of a Bitcoin ETF in the US marked an important milestone in the crypto world, offering a bridge between traditional finance and digital assets. While this development was expected to bring more liquidity and stability to Bitcoin, it appears to have changed its behavior relative to traditional stock markets. A divergence may indicate a change in investor perception or a change in the asset’s fundamental characteristics.

Liquidity concerns and future projections

Hayes speculated that Bitcoin’s current movement could signal liquidity challenges ahead (marked as “$liq” in his tweet). Liquidity is critical to the smooth functioning of markets and the stability of asset prices. If Bitcoin is indeed hinting at liquidity problems, it could have broader implications for both crypto and traditional financial markets.

The mention of the U.S. Treasury’s January 31st refund announcement in Hayes’ tweet suggests he is linking these liquidity concerns to upcoming economic policy decisions. This event can be a crucial indicator of future market movements and investor sentiment.

The Existential Risks of Bitcoin ETFs

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Hayes, in a blog post dated December 22, 2023, delved into the potential dangers that a Bitcoin ETF poses to Bitcoin’s existence. He argues that Bitcoin, unlike traditional monetary assets such as gold or fiat currency, requires active movement in its web for sustenance. He expressed concern about large traditional finance asset managers (TradFi) such as Blackrock entering the Bitcoin space. These entities, known for hoarding and hoarding assets without active use, could inadvertently cause the Bitcoin network to collapse due to lack of movement, especially after 2140 when Bitcoin block rewards hit zero.

Impact on the global financial system

In an essay dated January 15, 2024, Hayes emphasized the need to retain capital in the financial system to manage non-performing debt. He pointed to Bitcoin’s minimal correlation with bonds and warned of risks if bond watchers favor cryptocurrencies over Treasuries. Hayes emphasized the importance of financing Bitcoin through spot ETFs, similar to the gold market, to keep capital in the system and prevent a global financial crisis.

Broader market impact

Hayes’ observations invite a broader analysis of market dynamics. If Bitcoin deviates from traditional market indicators like the SPX, it could signal a change in the way investors view cryptocurrencies. This separation may reflect Bitcoin’s maturation as an independent asset class or highlight its sensitivity to different market forces compared to traditional assets.

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