Arthur Hayes Connects the Next Bitcoin Rally to the End of the US Government Shutdown

The Treasury Department has exceeded its target by approximately $150 billion. This additional liquidity will be released after the government reopens, reigniting the crypto bull run.

According to Hayes, everything is related to the US government ending the shutdown and releasing liquidity in the financial markets.

How the US government finances its debt

Hayes explained in his article titled “Hallelujah” that if the US government ensures there is enough cash in the financial system, BTC will reach another all-time high (ATH) before this bull cycle ends. The main reason the government will continually increase its supply of dollars is to maintain its ability to finance loans. This is because governments often tend to choose debt issuance over raising taxes to finance their agenda.

As the new administration continues to borrow to finance its agenda, the Federal Reserve’s balance sheet will continue to grow. This positive trend in dollar liquidity will ultimately drive bitcoin and crypto prices to new highs.

The American entrepreneur explained how several market participants could boost liquidity by ruthlessly buying government bonds. These participants include money market funds, foreign central banks, the Too Big to Fail (TBTF) banks, commercial banks and Relative Value Hedge Funds. Government-issued debt will invariably increase the money supply.

Under normal circumstances, the increasing money supply would have trickled down to the crypto market and kept BTC and other assets afloat. However, the ongoing government shutdown has caused a hiccup in that process.

Additional liquidity is released

As the shutdown enters its second month, the Treasury Department is borrowing money through its debt auctions but not spending. Hayes revealed that the Treasury Department’s General Account is about $150 billion above the $850 billion target. This means that the department currently maintains a negative dollar liquidity balance, which will turn positive when the shutdown ends and the additional liquidity is released into the markets.

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Hayes said he expects a choppy market as long as the government shutdown continues, because the liquidity squeeze is one of the main reasons for the broader decline. The market expert predicted that many traders will dump their bags during this period of market weakness, but emphasizes that this will be a mistake as the “dollar money market plumbing” is rarely wrong.