In new essay published on Monday, Arthur Hayes – a well-known digital asset investor and former CEO of BitMEX – claims that the crypto market is ready for a strong rally in the first quarter of 2025 before sending out sometime between “mid to late March.” Hayes' latest essay, titled “England,” delves deeply into several macroeconomic variables, including U.S. Federal Reserve (Fed) policy, the Treasury's General Account balance of the US (TGA), the Fed's Reverse Repo Facility (RRP), and political uncertainty in Washington.
Hayes began his essay by setting a vivid scene from Japan's Hokkaido ski resorts, comparing the dangerous backcountry conditions caused by ample snow cover over spiky bamboo grass (sasa) to market barriers. which could cut crypto rallies short. He contends that 2025 has begun amidst heavy snow in Hokkaido – a fitting meter for what he sees as a liquidity “dump” that could drive digital asset prices up. Nevertheless, he warns that the political and fiscal environment in the United States could introduce unforeseen risks.
Why March could mark the next peak for Crypto
“As we enter 2025, the question on the minds of crypto investors is whether the Trump pump can continue,” Hayes writes, referring to the initial optimism surrounding the President. Donald Trump's second term. While Hayes believes that “the high expectations for policy action out of the Trump camp are setting the market up for disappointment,” he contends that any short-term negativity could be offset by a “dollar liquidity squeeze.”
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Hayes emphasizes that the Fed's RRP has been critical to Bitcoin's price trajectory. Since the third quarter of 2022, the utility's solution has positively correlated with crypto and equity prices.
“Bitcoin ended in Q3 2022 when the Fed's Reverse Repo Facility (RRP) it peaked,” he explains, noting that US Treasury Secretary Janet “Bad Gurl” Yellen helped shift from issuing longer-dated coupon bonds to issuing shorter dated T-bills. This approach, he argues, has effectively drained more than $2 trillion from the RRP, injecting liquidity into global markets.
Now, with the RRP falling to near zero, the Fed has “significantly adjusted the RRP policy rate” to make it more attractive. Hayes points out that it still represents a potential $237 billion injection into markets once the remaining RRP funds move into higher yielding Treasury bills. At the same time, continuous quantal tension (QT) withdrawing $60 billion per month, totaling $180 billion between January and March. Completing both factors will result in an injection of $57 billion over the quarter.
Another major focus of Hayes' thesis is the General Financial Account. As debt ceiling negotiations loom, the Treasury's inability to issue new debt means it can only cover costs by spending down the TGA – an act which will release liquidity.
“Since the total amount of debt cannot rise until the US Congress raises the debt ceiling, the Treasury Department can only spend money from its checking account, the TGA,” Hayes wrote, noting that the balance is about $722 billion.
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He believes that without a debt ceiling solution, the TGA could be exhausted by May or June. For crypto markets, the crux of the matter is the time frame for a deal in Congress. The essay highlights Trump's narrow majority and the likelihood that Republicans who position themselves as fiscal conservatives will not give quick or easy approval. It is unlikely that the Democrats, said Hayes, will enable more spending for a president they oppose – giving more impetus to the law.
According to Hayes' calculations, the TGA drawdown could release an additional $555 billion between January and March. If combined with the $57 billion in net liquidity from the Fed's RRP and QT adjustments, total dollar liquidity could rise to $612 billion in the first quarter.
Hayes enters March as the critical juncture — when this liquidity surge may begin to wane and prospects for new federal spending or pro-crypto legislation from the Trump administration may not materialize on schedule. time
“I believe I answered the question I asked at the beginning. “That is, the Trump team's relaxation of the proposed pro-crypto and pro-business legislation can be masked by a very positive dollar liquidity environment,” he said, before concluding that peak liquidity may decrease rapidly once the market anticipates debt ceiling resolution and subsequent replenishment of the TGA.
From a historical lens, Hayes mentions Bitcoin's price action in 2024, which peaked in mid-March around $73,000, then moves sideways and falls just before the April 15 tax deadline. The logic, he suggests, is simple: as soon as TGA spending has run its course, the net positive liquidity picture will return to neutral or negative, leaving risk assets vulnerable.
While Hayes acknowledges that Chinese credit expansion, the Bank of Japan's interest rate policies, and the Trump administration's possible dollar weakening strategy against other major currencies or gold could wear down his timeline, the he trusts that RRP and TGA mechanics are reliable near-term measurements. Crucially, these two sources of liquidity seem powerful enough to overcome any disappointment about Trump's policies until at least the end of March.
“None of these key macroeconomic issues are known a priori, but I have confidence in the math behind how the balance of RRP and TGA will change over time,” he says, stressing that the crypto and stock markets that continue to grow since the end of 2022 align with the large drain in the RRP.
Hayes concludes by suggesting that, historically, markets often provide significant selling opportunities in the first quarter. By spring, investors may want to take profits and “chill on the beach” while they wait for better liquidity conditions to re-emerge in the second half of the year. “Just for the record, just like almost every other year, it will be time to sell at the end of the first quarter,” Hayes concludes.
At press time, Bitcoin was trading at $101,344.
Featured image from YouTube, chart from TradingView.com
