With Fed's rate hike around the corner, Bitcoin price could rally again

Arthur Hayes, crypto influencer and analyst told his 377,000 followers on Twitter that he is shorting US bank related stocks. The expert’s opinion is that the Central bank needs to cut interest rates to tackle the banking crisis and rate hikes are deepening the brewing financial troubles of banks in the US. 

On the backs of banking failure and the decline in US equities, Bitcoin price rallied on Tuesday, climbing above $28,600. 

Also read: Bitcoin metrics hit an all-time high ahead of the US Federal Reserve’s rate decision

Arthur Hayes shorts US bank stocks for this reason

Hayes is a crypto influencer and BitMEX founder. The former BitMEX CEO recently shared his position on US bank stocks, in a tweet. Hayes explained that the brewing US banking crisis needs the US central bank, the Federal Reserve's stance to shift. 

The expert looks at rate cuts as a viable solution to the financial troubles of US banks, condemning the US Federal Reserve’s expected 25 basis point hike (25 bps) on May 3. 

In his recent tweet Hayes explains that a few of the US banks facing similar troubles as FRC may not be around soon. Unless the US Federal Reserve cuts interest rates, US banking troubles could persist. 

Hayes has consistently shared his opinion on the US banking crisis and critiques banks that have Commercial Real Estate (CRE) loans on their balance sheet. 

A CRE is a loan extended to individuals or entities for the acquisition, development, and construction (ADC) and the financing of income-producing real estate. Based on a report titled “Commercial real estate loan performance at failed US banks,” authored by Andrew Felton and Joseph B Nichols, “exposure to CRE loans at regional and small US banks and thrifts has soared over the last two decades.”

As these loans become concentrated on the balance sheets of banks, these institutions become more sensitive to swings in CRE prices. 

From Hayes’ list of banks, First Republic Bank and Signature Bank emerged as victims of financial troubles. The other key US banks on the list are Wells Fargo and Company, JP Morgan Chase & Co., and Bank of America, among others. 

The US Fed is expected to hike interest rates by 25 bps on May 3. Hayes has criticized the Central Bank’s move citing that rate hikes are fueling the financial crisis in the banking ecosystem and called for “rate cuts” instead.

Hayes’ thesis is that rate hikes will deepen the US banking crisis, making more banks shut doors for business due to their brewing financial woes. The BitMEX founder argues that the banks highlighted as “TBTF” in his list have a government guarantee on their deposits. However, “other banks on the list could suffer as long as inflation is sticky at these high levels and possibly rising.”

Bitcoin price rallies with declining US equities, shift in allegiances

Interestingly, for most of 2022, there was a deep correlation between Bitcoin and US equities. The banking crisis highlighted by Arthur Hayes has driven the two apart and given rise to an “inflation hedge” narrative, where capital rotates into BTC when US equities suffer a decline in their prices. 

The failure of more US banks could continue fueling the “Bitcoin is an inflation hedge” thesis and drive capital rotation into the risk assets sector, seen typically since the beginning of 2023. 

Bitcoin price yielded nearly 3% gains since Tuesday, climbing above $28,600 with news of troubled US banks and their deepening troubles. 

Experts set a bullish breakout target of $35,000 for Bitcoin price. Adrian Zduńczyk, CMT, crypto expert and trader set a technical breakout objective at $35,500 despite the fluctuations on the Bitcoin price chart. 

BTC/USD 1D price chart

After crossing cluster resistance at $28,500, Bitcoin price is headed to challenge the 2021 lows at $30,000 in its run up to the breakout objective at $35,500. The expert’s thesis remains valid if there is bullish momentum to sustain a persistent trend shift.