Source: Bitcoin Magazine

Compiled by: Felix, PANews

BitMEX co-founder Arthur Hayes gave a speech at the Bitcoin 2026 conference, during which Hayes explained why he is optimistic about Bitcoin, why Kevin Worsh is not the hawk people worry about, and how a quietly effective bank regulation that took effect on April 1 could unleash trillions of dollars in new credit. Additionally, Hayes presented a year-end target price of $125,000 for Bitcoin and explained his "war-time printing" theory that led to this target.

PANews has compiled details of the speech; here are the specifics.

Over the past few days, I have deeply considered how the printing policy will evolve, factoring in the development of AI and the situation with the Iran war, which shaped the content of this speech. It is evident that my stance has turned more bullish, and I will explain why.

Of course, we cannot ignore the wars currently taking place, so before delving into the core arguments, I must establish a few assumptions. First, we will not die from nuclear annihilation; because if nuclear annihilation occurs, any investment will lose meaning, and we will set that worry aside for now. Second, the market will view this event as some kind of "short-term" event, whatever that means. Now is the time to think about currency creation and printing money, and what it means for Bitcoin.

Every morning, I analyze how the war affects my portfolio through a chart on Bloomberg. This chart shows the spread between six-month futures contracts for WTI crude oil and contracts for the current month. I do not care about the propaganda battles from Trump or Iran; I only care about: Is there enough goods and oil passing smoothly through the strait? From the chart, conditions have improved, which means front-end prices are tending towards the backend, indicating that while the situation is bad, it is not at a catastrophic level. So I can temporarily disregard it and continue thinking about other matters.

Every time I take the stage to speak, I always discuss money printing. From the article I published about two weeks ago, my thoughts have changed, and I believe that in the medium to long term, liquidity will turn positive. Therefore, if we consider this from a negative aspect, we will find the deflation brought by AI. There has been discussion about how many knowledge workers will lose their jobs because efficient and cheap models can complete knowledge-based work. A few months ago, I wrote an article outlining my expectations for these losses. I believe this could result in hundreds of billions of dollars in losses for the banking system.

As for the Federal Reserve, I will discuss that later. The market is very concerned about the Federal Reserve Chair pick Kevin Worsh, and everyone is speculating whether he is hawkish or dovish. I will analyze his statements objectively; essentially, his comments are neutral, neither benefiting nor harming liquidity. Those who panic about Worsh being a super hawkish Federal Reserve Chair have actually misunderstood the signals behind it. Lastly, let’s take a 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 lend more to those involved in various weapons manufacturing and related component production? Additionally, shifts in bank regulation will allow banks to increase their leverage on their balance sheets.

I have been following this chart since last October, where the magenta line represents the Nasdaq index, the gold line represents Bitcoin price, and the white line represents U.S. tech stock ETFs.

Now most people, at least institutional investors, believe that Bitcoin price is nearing the Nasdaq index, and indeed it has performed this way over the past four to five years. However, since Bitcoin hit an 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 those tech stocks that have been hit hard, you will find that they are almost all SaaS companies, which now have products that AI can complete for only $10 a month, whereas they previously charged $10,000 or other absurdly high prices. These stocks have been severely impacted. I believe this indicates the occurrence of a credit tightening event, and central banks around the world do not realize this; they have not printed enough money, and Bitcoin has also been affected. This is the pre-war situation. The cutoff date for my chart is February 28.

Another wish of mine is to fire all my accountants and lawyers. I have spent too much money on this. I can't wait for Claude to take over everything. This will have a very adverse impact on those lending to high-salaried individuals. Essentially, this is my view on AI becoming the new subprime crisis and what it could mean for the commercial banking system.

I believe this narrative has caused Bitcoin to drop from October of last year to the outbreak of the Iran war at the end of February this year. However, since the war began, Bitcoin has performed better than other stocks, outpacing both the Nasdaq and SaaS stocks. I believe Bitcoin is now focusing on wartime inflation. Since the U.S. and many other countries have explicitly acknowledged they are in a state of war, their defense spending is insufficient, and they need to print more money to create more bombs, what changes will occur next?

So, temporarily setting AI aside, let’s talk about the Federal Reserve. In January of this year, when Kevin Worsh was nominated as Federal Reserve Chair, the market was in a panic. Because since the 2008 financial crisis, he has been critical of the Federal Reserve's massive balance sheet and has openly called for tapering and rate cuts.

If you have read my articles, you know that I have always advocated that the quantity of currency is more important than its price. Therefore, I care more about his comments on the balance sheet than about the short-term interest rate trajectory. If the market believes that liquidity in dollars will decrease due to Worsh coming to power, then they will have a bearish outlook on Bitcoin and other risk assets. This is the sort of narrative we have recently seen in the media about the "incoming super hawkish Federal Reserve Chair."

These regulations will restrict how banks hold assets on their balance sheets and the capital they must hold for that purpose. But I do not believe the situation will be as such. I believe that the Federal Reserve will essentially transfer reserves, treasury bonds, and repurchase agreements into the commercial banking system through new regulatory rules for banks. These rules will limit how banks hold assets on their balance sheets and the capital they must hold for that purpose. Finally, I believe that to understand the influence of Worsh on the Federal Reserve, it is crucial to recognize that he faces a significant constraint: he must work closely with Treasury Secretary Scott Basent to ensure that any operations he conducts on the Federal Reserve's balance sheet do not impair Basent's ability to issue tens of billions of dollars in bonds.

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

Basically, since 2008, the Federal Reserve has increased liabilities in bank reserves and purchased assets from the banking system. These assets include treasury bonds, mortgage-backed securities, and repurchase agreements. When Worsh says the balance sheet is too large, he refers to the Federal Reserve holding too many bonds and hopes to reduce the balance sheet. Thus, he may sell bonds. But this would significantly impact the market. Alternatively, I believe what is currently implied is that he will engage in asset swaps with the U.S. banking system. The banking system's balance sheet, which includes the Federal Reserve's reserves, is also viewed as an asset. Approximately $3 trillion is stored as reserves on the Federal Reserve’s balance sheet. Their sources of funds include loans, deposits, and equity. Therefore, for a certain size of balance sheet, there must be a corresponding amount of equity. This is referred to as the capital adequacy ratio. Thus, the Federal Reserve and banks need to engage in swaps. Banks need to release reserves, reduce demand for reserves, and replace those reserves with treasury bonds and repurchase agreements.

This is precisely what the deregulation of the U.S. banking system drives. So, whenever you hear U.S. monetary officials talking about deregulation, they mean they want to allow the banking system to absorb all the debt we create and remove it from the Federal Reserve's balance sheet.

The ultimate goal is for the U.S. commercial banks to take over the baton of currency creation from the Federal Reserve, with their balance sheets containing treasury bonds and repurchase agreements, and on the liability side, including deposits and shareholders' equity. The key to all this is that the net effect on dollar liquidity is neutral. No selling or buying anything, it is just a swap transaction. As for who can hold what, this is purely a regulatory expedient. But ultimately, Worsh can stand up and tell everyone that he has successfully reduced the Federal Reserve's balance sheet. But in reality, as investors, we only care about what the ultimate outcome is: Nothing.

Furthermore, Worsh will not clash with Basent. They can swap out the picture of Powell for one of Worsh in their previous group photo. After all, we have issued $38 trillion in debt, and the government needs funds. The Federal Reserve will fulfill its responsibilities to ensure orderly markets so that people can purchase this debt.

Let’s take a look at spending; this is a chart for this fiscal year, from October to September of the following year. It can be seen that from the COVID-19 pandemic to the presidential term and now to the largest peacetime deficit in U.S. history, the deficit for FY 2026 is slightly higher than that of FY 2025. Now, the crux of all this is that the U.S. Treasury is not going to cut spending. Trump did not mention drastically reducing spending. Last year’s DOGE plan has already been forgotten. Now it is all about wartime spending. His new defense budget is 50% higher than before, reaching $1.5 trillion. This does not sound like the Treasury or politicians are keen to cut spending so that the Federal Reserve can taper.

Therefore, all talk about the Federal Reserve reducing its balance sheet does not make sense because politicians and the Treasury behind them are continuously increasing the debt level. Here’s another chart. Who is buying this debt? The amount of debt purchased by foreigners is not as much as it used to be. I exclude countries that are typically used for hedge fund basis trading. It can be observed that the 25% share of debt held by foreigners has remained largely unchanged, while the total debt has significantly increased, which implies a need for a new buyer that is insensitive to price to purchase all this debt, and that buyer is the U.S. commercial banking system.

The reason the banking system can increase its debt holdings is that new regulatory rules that came into effect on April 1: the Enhanced Supplementary Leverage Ratio (ESLR). This new regulation allows banks to hold less reserves and other types of assets to support their loans and other items on their balance sheets. This means large banks like JPMorgan and Citibank can issue more treasury bonds and repurchase bonds in the market while obtaining extensions from the Federal Reserve. For smaller banks, which serve as the loan engine of the U.S. economy, they can increase the issuance of construction and industrial loans.

S&P Global estimates that this ESLR asset reduction will generate $1.3 trillion in new loans. So, why would banks have a demand for loans? One of the criticisms from some other macroeconomic analysts regarding this analysis is that they believe the banking system lacks demand and is not creating enough loans or that demand is insufficient. However, there is an excellent source of demand: the U.S. Department of Defense. They not only invest equity in certain transactions but also guarantee production contracts. Banks see companies having government-guaranteed clients (the government can print money) and will lend to them. They will also lend to resource extraction companies that mine key materials needed for bomb production.

Finally, all AI capital expenditures are now considered national security issues. Therefore, when a mega-scale enterprise cannot finance its debt with free cash flow and turns to market financing, they find that large banks with extensive balance sheets are willing to provide debt support. So, please keep an eye on construction industrial loans; I believe you can get relevant information from the Federal Reserve weekly.

The advantage of bank loans lies in their multiplier effect, which is higher than central bank loans, typically around three times. We have observed this through experience. This means approximately $4 trillion will be created, which is much larger than the credit losses that might result from AI taking people's jobs, and this is why I am more optimistic about Bitcoin.

This liquidity chart bottomed out around last November, which roughly coincided with Bitcoin's bottoming out time. I believe we have experienced some turbulence and some volatility. Now is the time to break through. That is why I believe Bitcoin will continue to rise. I think my year-end target price is about $125,000; however, the specific number is not the point. Thank you all.

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

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