Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Arthur Hayes, a prominent market analyst and former CEO of crypto exchange BitMEX, attributes Bitcoin’s recent price plunge below $90,000 to a contraction in U.S. dollar liquidity and strategic “basis trades” by institutional investors, rather than a lack of genuine long-term interest. Hayes argues that the current market dynamics suggest a brewing “credit event,” which could paradoxically propel Bitcoin to a price range of $200,000 to $250,000 by year-end if the U.S. government expands the money supply.
Hayes’s Liquidity Argument
According to Hayes, Bitcoin serves as the “free-market weathervane of global fiat liquidity,” with its price movements heavily influenced by expectations of future fiat supply. The cryptocurrency recently dropped below $90,000, marking a seven-month low and erasing all of its 2025 gains, even as traditional stock indexes like the S&P 500 and Nasdaq 100 approach all-time highs.
Hayes suggests that if a significant stock market correction of 10% to 20% occurs while interest rates remain near 5%, the U.S. government would likely resort to printing more dollars. This influx of liquidity, he contends, could trigger a substantial rally for Bitcoin, pushing its value considerably higher.
Institutional Basis Trades and Market Impact
The market analyst highlighted that Bitcoin’s previous rise since April, despite a decline in USD liquidity by his metrics, was propped up by institutional buy-ins and “liquidity-positive rhetoric from the Trump administration.” However, he believes that many of the largest holders of Bitcoin ETFs, such as BlackRock’s IBIT, are not taking long positions but are instead engaged in “basis trades.”
These sophisticated trades involve simultaneously buying a Bitcoin ETF and shorting a related Bitcoin futures contract to profit from the narrowing difference between the asset and futures prices. Hayes points out that hedge funds and investment firms like Goldman Sachs and Jane Street utilize this strategy, which is capital-efficient as the ETF can be posted as collateral against short futures positions.
The recent decline in Bitcoin’s price has reduced the profitability of these basis trades, contributing to significant outflows from ETFs. BlackRock’s IBIT, for instance, recorded a record $463 million one-day outflow on November 14, while crypto funds globally experienced $2 billion in weekly outflows. Hayes asserts that retail investors often misinterpret these institutional actions, leading to a negative feedback loop where their selling further decreases the basis, prompting more institutional selling of ETFs.
Broader Market Context
The cryptocurrency market’s current downturn is also influenced by other factors. On Tuesday morning, nearly $1 billion worth of Bitcoin from wallets associated with the defunct Mt. Gox exchange was moved, with 10,608 Bitcoin transferred to new addresses, including 185 BTC, valued at approximately $17 million, sent to a hot wallet.
Technical indicators further underscore the bearish sentiment, with Bitcoin’s descent triggering a “death cross” and its first weekly candlestick close below the 50-week moving average. These signals are often interpreted as harbingers of a potential bear market.
Outlook on Bitcoin’s Trajectory
Hayes’s analysis provides a macroeconomic lens through which to view Bitcoin’s recent performance, emphasizing the critical role of U.S. dollar liquidity and institutional trading strategies. His perspective suggests that while current market conditions may appear challenging, a shift in government monetary policy could dramatically alter Bitcoin’s trajectory, potentially leading to a significant upward movement despite immediate headwinds.
