Source: Bitcoin Magazine

Compiled by: Felix, PANews

Arthur Hayes, co-founder of BitMEX, delivered a speech at the Bitcoin 2026 conference. In this talk, Hayes outlined his bullish stance on Bitcoin, addressed why Kevin Warsh is not the hawk people fear, and discussed how a quietly implemented banking regulation effective April 1 could unleash trillions in new credit. Additionally, Hayes set a target price of $125,000 for Bitcoin by year-end and explained his reasoning through the 'wartime printing' theory.

PANews has summarized this talk; here are the details.

In recent days, I've been deeply considering how money printing policies will evolve, taking into account the development of AI and the situation of the Iran war, leading to this speech. It's clear that my stance has turned more bullish, and I'll explain why.

Of course, we can't ignore the wars currently happening, so before diving into the core argument, I must establish a few assumptions. First, we won't die from nuclear annihilation; because once that happens, any investment will lose significance, so let's set that concern aside for now. Second, the market will view this event as some sort of 'short-term' event, whatever that means. Now it's time to think about currency creation and money printing, and what this means for Bitcoin.

Every morning, I analyze how the war affects my portfolio through a chart on Bloomberg. This chart shows the price spread between WTI crude oil six-month futures contracts and the spot contract. I couldn't care less about the propaganda wars from Trump or Iran; what I care about is whether there are enough commodities and oil smoothly passing through the strait. The chart indicates that the situation has improved, meaning that front-end prices are converging with back-end prices, suggesting that while conditions are bad, they are not at a critical point. So I can temporarily ignore it and continue thinking about other things.

Every time I take the stage, I always talk about money printing. Based on an article I published about two weeks ago, my thoughts have shifted; I believe that liquidity will turn positive in the mid to long term. So if we consider it negatively, we find that AI brings about deflation. People have been discussing how efficient and cheap models can take over knowledge work, leading to many knowledge workers losing their jobs. A few months ago, I wrote an article outlining my expectations for these losses. I believe this could cause hundreds of billions of dollars in losses for the banking system.

As for the Fed, we'll talk about that later. The market is quite concerned about the nomination of Kevin Worsh as Fed chair, and everyone is speculating whether he is hawkish or dovish. I will objectively analyze his statements; basically, his remarks are neutral, neither helping nor harming liquidity. Those market participants who panic about Worsh being the super hawkish Fed chair haven't really understood the underlying signals. Lastly, let's look at commercial bank loans. Why will commercial bank loans increase? Why will the war economy in the U.S. and abroad prompt banks to issue more loans to those involved in various weapon production and related component manufacturing? Furthermore, changes in bank regulation will allow banks to increase their leverage on their balance sheets.

I've been following this chart since last October; the magenta line represents the Nasdaq index, the gold line represents Bitcoin's price, and the white line represents the U.S. tech stock ETF.

Now, most people, at least institutional investors, believe that Bitcoin's price is close to the Nasdaq index, and it has indeed performed that way over the past four or five years. However, since Bitcoin hit its all-time high of $126,000 last October, it has dropped about 50%, while the Nasdaq index has remained stable. Large tech stocks are performing decently.

But if you closely observe the tech stocks that have been hit hard, you'll find they're almost all SaaS companies, whose products can now be completed by AI for just $10 a month, whereas they used to charge $10,000 or some other outrageous high price. These stocks have taken a beating. I believe this signals a credit tightening event that central banks are unaware of; they haven't printed enough money, and Bitcoin has also been affected. This is the pre-war situation. The cutoff date for this chart is February 28.

My other wish is to fire all my accountants and lawyers. I've spent way too much on this. I can't wait for Claude to take over everything. This will have a terrible impact on those who issue loans to high-salary individuals. Basically, this is my view on AI becoming the new subprime crisis and what it might mean for the commercial banking system.

I believe it's this sentiment that caused Bitcoin to drop during the U.S.-Iran war from last October to the end of February. However, since the war started, Bitcoin has outperformed other stocks and outpaced the Nasdaq and SaaS stocks. I think Bitcoin is now focused on wartime inflation. Since the U.S. and many other countries have clearly acknowledged they are in a state of war, with inadequate defense spending and needing to print more money to make more bombs, what changes will happen next?

So let's set AI aside for a moment and talk about the Fed. In January, when Kevin Worsh was nominated as Fed chair, the market was in a panic. Because since the 2008 financial crisis, he has been critical of the Fed's massive balance sheet and has openly stated the need for tapering and rate cuts.

If you've read my articles, you know I've always argued that the quantity of money is more important than the price. So I'm more concerned about his statements regarding the balance sheet than about how short-term interest rates will move. If the market believes that Kevin Worsh's ascension will reduce dollar liquidity in the market, then they will short Bitcoin and other risk assets. This is what we've recently seen in the media with the phrase 'the soon-to-be super hawkish Fed chair.'

These regulations will limit how banks hold assets on their balance sheets and the capital they must hold for that. But I don't think it will be that way. I believe the Fed will essentially transfer reserves, treasury bonds, and repurchase agreements to the commercial banking system and accomplish this through new banking regulatory rules. These regulations will limit how banks hold assets on their balance sheets and the capital they must hold for that. Finally, I think to understand Warren's influence on the Fed, it's crucial to realize he faces a very important constraint: he must closely collaborate with Treasury Secretary Scott Basent to ensure that any actions he takes regarding the Fed's balance sheet do not harm Basent's ability to issue billions of dollars in bonds.

Here's a very simple balance sheet. There are no specific numbers here because I know it's a bit complex for some. On the asset side, we have treasury bonds, mortgage-backed securities (MBS), and repurchase agreements. These are tools that help people finance their purchases of treasury bonds. On the liability side, we have bank reserves, the Treasury's general account, government checking accounts, and circulating currency.

Basically, from 2008 until now, the Fed has increased its liabilities in bank reserves and purchased assets from the banking system. These assets include treasury bonds, mortgage-backed securities, and repurchase agreements. When Warren says that the balance sheet is too large, he means that the Fed holds too many bonds and wants to shrink the balance sheet. So, he might sell bonds. But this would have a significant impact on the market. Or, I think what is currently implied is that he will swap assets with the U.S. banking system. The balance sheet of commercial banks, which includes the Fed's reserves, is also considered an asset. There are about $30 trillion in reserves stored on the Fed's balance sheet. Their funding sources include loans, deposits, and equity. Therefore, for a certain scale of balance sheet, there must be a corresponding amount of equity. This is known as the capital adequacy ratio. Thus, the Fed and banks need to swap. Banks need to release reserves, reduce demand for reserves, and replace those reserves with treasury bonds and repurchase agreements.

This is driven by the deregulation of the U.S. commercial banking system. So whenever you hear U.S. government monetary officials talking about deregulation, what they mean is that they want to allow the banking system to absorb all the debt we create and remove it from the Fed's balance sheet.

The ultimate goal is for U.S. commercial banks to take over the baton of currency creation from the Fed, with their balance sheets containing treasury bonds and repurchase agreements, while the liability side includes deposits and shareholder equity. The crux of it all is that the net effect on dollar liquidity is neutral. No selling or buying anything; it's just a swap transaction. As for who can hold what, it's purely a regulatory expedient. But ultimately, Worsh can step up and tell everyone that he successfully diminished the Fed's balance sheet. But in reality, as investors, we only care about what the end result is. And the end result is nothing.

Moreover, Worsh will not clash with Basent. They can just swap out the picture of Powell for Worsh. After all, we've issued $38 trillion in debt, and the government needs funds. The Fed will fulfill its duty to ensure the market is orderly so that people can purchase this debt.

Let’s take a look at the spending situation; this is a chart for this fiscal year, from October to the following September. You can see that from the COVID-19 period to the presidential term, we are now facing the largest peacetime deficit in U.S. history, with the 2026 fiscal year's deficit slightly higher than that of 2025. Now, the focus is that the U.S. Treasury will not reduce spending. Trump didn't say anything about drastically cutting spending. Last year's DOGE plan has been forgotten. Now it's all about wartime spending. His new defense budget is 50% higher than before, reaching $1.5 trillion. This doesn’t sound like the Treasury or politicians want to cut spending to allow the Fed to shrink its balance sheet.

Therefore, all the talk about the Fed shrinking its balance sheet doesn't make sense because politicians and the Treasury behind them are continuously increasing the debt size. Here's another chart. Who is buying this debt? The amount of debt purchased by foreigners is not as much as before. I've excluded those countries that typically engage in hedge fund basis trading. You can see that the 25% share of debt held by foreigners remains basically unchanged, while the total debt has risen sharply, meaning a new buyer who is indifferent to price is needed to absorb all this debt, and that buyer is the U.S. commercial banking system.

The reason the banking system can increase its debt holdings is due to the new regulatory provisions that took effect on April 1: the Enhanced Supplementary Leverage Ratio (ESLR). This new rule allows banks to hold fewer reserves and other types of assets to support the loans and other items on their balance sheets. This means that large banks like JPMorgan and Citibank can issue more treasury bonds and repurchase bonds in the market and obtain extensions from the Fed. For small banks, which are the engines of U.S. economic lending, they can increase the issuance of loans for construction and industry.

S&P Global estimates that this ESLR u balance sheet reduction will create $1.3 trillion in new loans. So, why is there a demand for loans in banks? One criticism from other macroeconomic analysts about this analysis is that they believe the banking system lacks demand, not creating enough loans, or that demand is insufficient. But there's a fantastic source of demand—the U.S. Department of Defense. They not only inject equity into certain deals but also guarantee production acquisitions. When banks see that corporations have clients like the government (which can print money), they lend to them. They also lend to resource miners who extract critical resources needed for bomb manufacturing.

Finally, all AI capital expenditures are now seen as a national security issue. So when a colossal enterprise can't finance its debt with free cash flow and turns to the market for funding, they find large banks with substantial balance sheets willing to back them up with debt support. Keep a close eye on construction industry loans; I think you can get relevant info from the Fed weekly.

The advantage of bank loans is that their multiplier effect is higher than that of central bank loans; experience shows it's about three times. We have observed this through experience. This means approximately $4 trillion of funds will be created, which is much larger than the credit losses that AI might cause by taking away people's jobs, and this is also why I am more bullish on Bitcoin.

This liquidity chart bottomed out last November, roughly coinciding with Bitcoin's bottom. I believe we've gone through some fluctuations and volatility. Now is the time for a breakout. That's why I believe Bitcoin will continue to rise. I think my year-end target is around $125,000, but the exact number isn't that important. Thank you all.

Related reading: Arthur Hayes: Bitcoin year-end target price $125,000