NEW: Reverse repurchase agreements (repos) are diverting funds away from riskier assets like#Bitcoinbecause of their high interest rates.

Here’s why the Fed’s suggestion of a rate cut didn’t boost Bitcoin prices, according to former BitMEX CEO Arthur Hayes. $BTC

The flow of money has shifted from treasuries to higher-yielding reverse repositories, according to the former head of BitMEX.

Arthur Hayes, co-founder and former CEO of BitMEX, has shared his theory on why interest rate cuts by the United States Federal Reserve may not have much of an impact on Bitcoin prices.

In a post on X on Sept. 2, Maelstrom’s chief investment officer said that despite Federal Reserve Chairman Jerome Powell all but confirming a September rate cut during his Jackson Hole speech on Aug. 23, Bitcoin prices have struggled and fallen since then.

Since the speech, BTC prices briefly rose to $64,000 before falling 10% to a low of $57,400 on Sept. 2. It has recovered slightly, trading at $59,238 at the time of writing on Sept. 3.

Offering his take on why, Hayes pointed to reverse repurchase agreements (RRPs) — the sale of securities with the agreement to repurchase at a higher price at a specific future date — noting that they are paying 5.3% interest.

That's higher than Treasuries — short-term government debt obligations — which pay lower yields of 4.38%.

As a result, large money market funds are pulling their money out of Treasuries and putting it into RRPs, resulting in less money circulating in the market for risk assets like crypto, Hayes explained.

Account X “ELI5 of TLDR” explained that the RRP program can act as an overnight parking lot for big banks and money managers to place their capital.

They explained that it is also paying more than other safe investments, so the capital remains in “parking” instead of flowing through the economy.

Since the Fed announced the likely rate cut in September, an additional $120 billion has entered reverse repurchase agreements, Hayes noted.



Hayes highlighted that the development goes against the assumption that lower interest rates are good for risky assets like Bitcoin $BTC

R$320.406.

Many believe that low interest rates encourage borrowing and spending, which leads to more liquidity in the markets as safe, interest-paying accounts are no longer as attractive, while a weaker dollar can make BTC appear stronger.

According to the CME Fed Watch tool, there is a 69% chance of a 25 basis point cut and a 31% chance of a 50 basis point cut at the Fed's Sept. 18 meeting.

A larger rate cut would signal a more aggressive stance from the Fed, potentially leading to a more dramatic market response and a greater boost to economic activity.