Arthur Hayes: Wartime credit can lift Bitcoin, despite a “shrinking” Fed

Arthur Hayes turned bullish on Bitcoin again. He says wartime outlays and bank credit will keep dollar liquidity flowing even if the Fed’s balance sheet looks smaller.

Hayes spoke at Bitcoin 2026 in Las Vegas. He framed the shift simply: governments will spend more on defense, and that spending must be financed. He puts Bitcoin back in the “hard money, liquidity-sensitive” trade. Watch his framing.

“Since the war has started, Bitcoin has outperformed,” he said. “It outperformed NASDAQ and SaaS stocks. Bitcoin is now focusing on wartime inflation.”

He does not expect explicit QE. He expects a balance-sheet reshuffle between the Fed and banks. The Fed can claim shrinkage while dollar liquidity stays intact.

Hayes addressed fears around Kevin Warsh. He said markets see Warsh as hawkish because of his criticism of the Fed’s large balance sheet. Background on Warsh concerns. He argues Warsh would be constrained by Treasury’s need to fund large deficits. More on the hawkish-Fed narrative.

“When you’ve issued $38 trillion of debt and need to fund the government, the Fed will keep the market orderly so people can buy this debt,” Hayes said.

• Mechanism he expects: banks swap Fed reserves for Treasuries and repos; Fed’s sheet shrinks on paper; net dollar liquidity is neutral. His explanation.
• He tied this to US bank deregulation and ESLR changes from April 1, allowing big banks to hold more Treasuries/repos and smaller banks to expand lending.
• He cited an S&P Global estimate of $1.3 trillion in new loans from the ESLR shift.

Demand, he says, is clear. Defense suppliers, resource miners, and AI infrastructure have government-backed orders. Banks will lend to them.

He sees bank lending as having a higher multiplier than central bank liquidity. He estimated up to $4 trillion of credit creation.

Hayes said his liquidity chart bottomed in November, near Bitcoin’s local bottom. After war-driven chop, he expects a breakout.

“My end of year choice target is like $125,000,” he added, with a caveat on being wrong.

At press time, Bitcoin traded at $76,628.