Arthur Hayes' Hallelujah: Fed's SRF to Drive the Next Crypto Bull Run

Fed’s SRF to Drive the Next Crypto Bull Run, Says Arthur Hayes

BitMEX co-founder Arthur Hayes has once again made headlines with his latest crypto bull run prediction. In his recent article entitled “Hallelujah,” Hayes has sounded the alarm on a 'stealth' quantitative easing mechanism that could send Bitcoin and other cryptos soaring. He outlines a compelling case for how the Federal Reserve’s Standing Repo Facility could inject liquidity into the market, boosting cryptocurrency prices

How Will Fed SRF Bring Crypto Bull Run?

Arthur Hayes’ Hallelujah article explains that the Federal Reserve's SRF will play a crucial role in driving the next crypto bull run through a "stealth" quantitative easing mechanism. Initially, this situation relates to ongoing U.S. fiscal deficits, which are about $2 trillion in size, and therefore will need to be financed via $2 trillion of borrowing.

Marginally, relative-value hedge funds, specifically those in the Cayman Islands, will buy U.S. Treasuries, financed via repo trades. When liquidity crudely dries up and the Secured Overnight Financing Rate (SOFR) reaches its upper bound of the Fed's target range, the Supplementary Reserve Facility will be instated to resource emergency funds into the financial system.

The increase in liquidity will lead to an expansion in the money supply, which will increase cryptocurrency valuation. Hayes says that this QE stealth program will be the next crypto bull run, as governments will continue to prioritize borrowing rather than saving.  

The Role of SRF in Preventing Funding Crises

Arthur Hayes notes that the reduced cash supply is facing intense demand for repo financing from relative value (RV) funds, which rely heavily on leverage for their Treasury purchases. If the SOFR exceeds the ceiling, making repo financing unreliable, the supplementary reserve will likely intervene to prevent a funding crisis. He noted,

“Because a similar situation occurred in 2019, the Fed created the SRF…The Fed can supply an infinite amount of cash using its printing press at SRF as long as one provides an acceptable form of collateral…If the SRF balances are above zero, then we know the Fed is cashing the checks of the politicians using printed money.”

He also highlighted concerns about the unsustainable trajectory of US government spending, noting that the government is heavily reliant on massive bond issuance to finance its activities rather than implementing tax increases. With worries about asset seizures and US fiscal spending, foreign investors are increasingly reluctant to buy US Treasury bonds and instead are buying gold as a safe haven. With no serious domestic savings system and major banks unable to absorb new debt, relative-value hedge funds are now entering the market and buying US Treasuries using repo financing.