Arthur Hayes says Bitcoin’s overall setup is turning bullish again, arguing that wartime spending, US fiscal deficits and bank-led credit creation could outweigh concerns of a smaller Fed balance sheet. Speaking at the Bitcoin 2026 conference in Las Vegas, the BitMEX co-founder said Bitcoin is increasingly being traded as a response to “wartime inflation,” not just the AI cycle.
Hayes framed The latest shift revolves around a simple premise: governments are openly preparing to spend more on defense, and this spending must eventually be financed. In his view, this puts Bitcoin back in familiar territory as a liquidity-sensitive asset with a hard money narrative.
“Since the war started, bitcoin has outperformed,” Hayes said. “It has outperformed the Nasdaq and outperformed SaaS stocks. Fundamentally, I think Bitcoin is now focused on wartime inflation.”
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The crux of Hayes’s argument was not that the Fed would suddenly return to outright quantitative easing. Instead, he focused on what he described as a potential balance sheet adjustment between the Fed and the commercial banking system, which could allow officials to claim the Fed is tapering while leaving the broader dollar liquidity picture largely intact.
Bitcoin vs. The hawkish Fed narrative
Hayes addressed the market Concerns about Kevin Warshwho said investors view him as a potential hawkish Fed chairman because of his criticism of the central bank’s large balance sheet. These concerns ignore the practical constraints facing monetary officials when the U.S. government is still issuing massive amounts of debt, Hayes said.
“If the market thinks there will be less dollar liquidity floating around the system because of what Warsh is going to do with the Fed, they will be bearish on Bitcoin and other risk assets,” Hayes said. “That’s what we’ve seen in the media kind of talking about this A hawkish Fed that will take effect after May When Warsh takes over. Now, I don’t think that’s the case.”
According to Hayes, Warsh will be constrained by the Treasury Department’s need to maintain the performance of the bond market. He argued that the Fed could not continue to reduce its balance sheet in a vacuum while the US government must continue to finance huge deficits.
“Ultimately, when you issue $38 trillion worth of debt and need to fund the government, the Fed will do what it’s told to do, which is make sure the market is orderly so people can buy that debt,” Hayes said.
Bank balance sheet trading
Hayes’ central mechanism is a swap: commercial banks reduce their holdings of Fed reserves and replace them with Treasury bonds and repurchase agreements. In this scenario, the Fed’s balance sheet could become smaller on paper, while the banking system absorbs more government debt.
“The point of all this is that the net impact on dollar liquidity is neutral,” Hayes said. “There’s nothing to be sold, nothing to be bought. It’s just a barter. It’s just a regulatory fiction as to who is allowed to keep what.”
This distinction is important for Bitcoin because Hayes says investors should care less about the stated size of the Fed’s balance sheet and more about whether the overall system creates or destroys dollar liquidity. If debt simply moves from the Fed to the balance sheets of regulated banks, the impact could be far less restrictive than markets fear.
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Hayes linked the shift to US banking deregulation and specifically pointed to changes to the enhanced supplementary leverage ratio, which he said went into effect on April 1. Speaking, the rule change allows larger banks like JPMorgan and Citibank to accommodate more Treasuries and repurchase agreements, while smaller banks can expand construction and industrial lending.
He also cited Standard & Poor’s Global’s estimate that reducing ESLR’s balance sheet could generate $1.3 trillion in new loans.
Wartime spending becomes the driver of demand
Hayes said the demand side of the lending cycle is already clear. Defense spending, critical resource production and artificial intelligence infrastructure have all become national security priorities, creating borrowers with government-backed demand and thus more attractive credit profiles for banks, he said.
“Why would banks have demand for loans? One criticism of this analysis from some other macroeconomists is that they claim that the banking system is not creating enough loans or that there is not enough demand,” Hayes said. “Well, we have a big source of demand which is the US War Department.”
Banks will lend to defense suppliers, resource miners and hyperscalers as AI capital spending becomes part of the national security framework, he said. Hayes called bank lending particularly important because, in his view, it carries a higher multiplier than central bank lending, and he estimates that about $4 trillion in credit could eventually be created.
This is the basis for its renewed upward trend. Hayes told him Liquidity chart at the bottom In November last year, around the same time as Bitcoin, he argued that after a period of uncertainty due to the war, the market may now be ready to move higher.
“I think we’ve taken some hits. We’ve had a little bit of a war. Now it’s time to break out,” Hayes said. “That’s why I think Bitcoin will go up. I think my end-of-year target is $125,000, whatever, it doesn’t matter, I’m wrong anyway.”
At press time, Bitcoin was trading at $76,628.
Featured image created with DALL.E, a chart from TradingView.com
