Arthur Hayes, co-founder and former CEO of BitMEX, has projected a significant dollar liquidity injection in the first quarter of 2025, potentially fueling further gains in the crypto market. 

In his latest blog, Hayes analyzes the Federal Reserve's monetary policies and the US Treasury’s handling of the debt ceiling, predicting a net liquidity increase of $612 billion that could sustain Bitcoin and other digital assets.

“The sasa of a letdown by team Trump on his proposed pro-crypto and pro-business legislation can be covered by an extremely positive dollar liquidity environment,” Hayes wrote, using a metaphor to describe how liquidity might overshadow market concerns about policy disappointments.

Hayes attributes the anticipated liquidity boost to the Federal Reserve's recent policy changes and the Treasury's use of its General Account (TGA) to fund government operations. He highlights the role of the Reverse Repo Facility (RRP), which has been drained by $2 trillion since 2022. Following a December rate adjustment by the Fed, Hayes expects the RRP to decline further by $237 billion in Q1 2025 as money market funds shift to higher-yielding Treasury bills.

This liquidity injection, combined with $180 billion in withdrawals due to ongoing quantitative tightening (QT), results in a net gain of $57 billion from the Federal Reserve. Hayes anticipates an additional $555 billion liquidity boost from the Treasury's spending of its TGA funds, which currently hold $722 billion, until Congress raises the debt ceiling.

Hayes also cautions about potential market turbulence in the second quarter as the Treasury refills its TGA and tax deadlines in April drain liquidity. He likens this to Bitcoin’s mid-March 2024 peak, followed by a downturn ahead of tax season.

Despite these risks, Hayes remains optimistic for the near term. “Given all the caveats, I believe I answered the question I posed at the outset,” he said, suggesting that Q1 conditions favor risk-taking in the crypto market.