On November 3, 2026, BitMEX co-founder and Maelstrom CIO Arthur Hayes posted a chart on X: a curve that has been overall upward since the beginning of the year, marked by some channels as a dollar liquidity-related index (approximately 32.71 million, with an annual growth rate of about 14), but the accompanying text was not optimistic—"Dollar liquidity is recovering," but before the Federal Reserve and/or the U.S. banking system truly starts to expand its balance sheet, Bitcoin is expected to continue weakening. The liquidity curve on the chart and the weak Bitcoin price on the screen form a glaring divergence: according to traditional narratives, when the dollar faucet loosens, BTC should rise first, but the reality shows one side indicators warming while the other side price is unresponsive. Hayes' post was quickly amplified, not because he discovered a new indicator, but because he pinned the "real trigger for bulls" back to the balance sheet expansion of the Federal Reserve and the U.S. banking system, a trigger that has yet to be pulled.

Dollar liquidity pool warming: indicators are rising

When Hayes mentioned "dollar liquidity is recovering," it refers not to a sudden monetary easing act but to the marginal loosening of dollar funds within the global financial system: the originally tight dollar liquidity pool is slowly being replenished, with dollars lingering between accounts becoming less stingy. To illustrate this, he posted an upward curve of the dollar liquidity-related index since the beginning of the year, climbing steadily from early 2026, recognized by some channels as the USDLIQ U Index, with the current reading around 32.71 million and an annual growth of about 14. For Hayes, this upward curve is sufficient to indicate one thing: whether through the money market or the subtle gaps in the banking system, dollars are beginning to accumulate again within the system rather than being continuously withdrawn.

However, the problem lies in the transparency of the curve itself regarding its caliber and authority: the index name and compilation method have not been confirmed by multiple sources, and what exactly constitutes the 32.71 million and the “14” behind it remains unverified externally. In other words, this is a representative indicator from a single source that can only be regarded as a hint of the trend of “dollar marginal loosening,” not conclusive evidence. To truly assess whether dollar liquidity is systematically warming, one must return to publicly available data such as the Federal Reserve's H.4.1 report and the balance sheets of large U.S. banks; until these more fundamental levels of liquidity exhibit a clear inflection point, Hayes' narrative with this curve feels more like a depiction of a preparatory phase rather than a signal that has already ignited a new round of bull market in crypto assets.

Balance sheet expansion is the trigger: Bitcoin must wait for central banks to act

Along this line, Hayes stated more bluntly: his usual framework is not “buying Bitcoin based on a certain liquidity index,” but focusing on the entire chain of "central bank balance sheets—dollar liquidity—risk assets." In his narrative, a rising dollar liquidity index is merely a necessary condition for the water level to start lifting; what can genuinely push Bitcoin from a sideways consolidation into trend movement is the Federal Reserve or the U.S. banking system expanding their balance sheets, swapping more risk-free assets for cash and reserves, thereby forcing funds to seek higher beta investments. The significant balance sheet expansions of major central banks in 2020-2021 coincided with the elevation cycles of Bitcoin and ETH, which he repeatedly referenced as "empirical samples" for this logic, reinforcing the narrative that "balance sheet expansion = trigger."

Therefore, in this same post referencing the dollar liquidity index, he added the critical judgment: before the Federal Reserve and/or the U.S. banking system begins to expand its balance sheet, Bitcoin is expected to continue weakening. This is not an emotional evaluation of the current price but a qualitative analysis of the current macro environment—as of November 2026, the Federal Reserve has not announced a new round of large-scale quantitative easing or systematic balance sheet expansion plans, and general interest rates in the U.S. remain relatively high, with new dollars mostly staying in the balance sheets of money markets and traditional assets rather than significantly permeating into the crypto world through channels like the total market value of dollar-denominated assets and DeFi's TVL. Under such circumstances, Hayes characterizes Bitcoin as being in a "weak maintenance" phase: the marginal warming of liquidity provides the macro precursor for the next bull market, but before the central banks truly engage in balance sheet expansion, Bitcoin resembles a high-beta bet that has been paused rather than a macro mainstream asset that has been reignited.

Disconnection between liquidity and price: risk appetite remains suppressed

This post from Hayes serves as a footnote that "rising water levels ≠ immediate willingness to take risks": on one hand, he presents the dollar liquidity index, which has risen about 14 this year, proving that dollars in the system are increasing; on the other hand, he directly concludes—before the Federal Reserve or the U.S. banking system truly begins to expand their balance sheets, Bitcoin will remain weak. The reason is that the current macro constraints are still heavy: as of November 2026, the U.S. is in a relatively high-interest-rate environment, and the Federal Reserve has not initiated a new round of large-scale quantitative easing or systematic balance sheet expansion. High nominal interest rates and unclear policy inflection points lead to new "liquidity" preferring to linger in tools like Treasury bonds, repos, and money market funds, which have certain returns, short durations, and can exit anytime instead of chasing volatile, hard-to-manage on-chain assets.

From a funding pricing perspective, this means that Bitcoin's "required rate of return" is being pushed to a high level. Since the Federal Reserve's balance sheet has not shown clear expansion, the market has not seen signals that would continuously dilute risk-free returns; thus, investors must use a higher risk premium to compensate for the uncertainty of holding high-beta assets like Bitcoin: either the price is low enough, or future liquidity expectations are aggressive enough; otherwise, it is not worth moving away from short-term bonds and money markets. Under such a pricing framework, even with indices like USDLIQ U reading higher, Bitcoin's trend in 2026 remains biased toward volatility and weakness, as dollars have not significantly flowed into on-chain through dollar-pegged token total market value, DeFi TVL, etc. The result is that marginal warming of liquidity has become a precursor for the next bull market, while before balance sheet expansion truly materializes, the overall risk appetite in the crypto market remains pressed under the macro brake.

ETH and on-chain funds: a layer more sensitive to the dollar tide

Diving deeper into Hayes' perspective on liquidity reveals that ETH and mainstream altcoins are assets that more directly feel the dollar tide. Historical experience has already provided a sample: during the 2020-2021 phase when central banks notably expanded their balance sheets and global liquidity was extremely loose, ETH's relative volatility compared to Bitcoin was often more exaggerated, with some mainstream altcoins amplifying this volatility, clearly showcasing high-beta characteristics. However, behind that market cycle was a key premise—the dollar did not just linger within the banking system and money markets, but rather, it flowed massively onto-chain through dollar-pegged tokens, pushing up the entire DeFi collateral and leverage chain, with ETH as a fee asset and core collateral naturally magnifying this liquidity shock.

In contrast to the current situation of "liquidity rising but without balance sheet expansion," this state means that this shock remains in the upstream reservoir, with limited amounts making their way onto the chain: the overall circulation and market capitalization of dollar-pegged tokens have not experienced the similar explosive lift seen in 2020-2021, and their cross-chain distribution leans more towards leading networks rather than flooding into various high-risk long-tail public chains; while the TVL of DeFi protocols may adjust slightly with the market, overall it resembles an internal reallocation of existing funds instead of a holistic elevation of new "water levels." At this stage, if large funds are willing to enter, they often only buy the most liquid and cleanest narrative assets like Bitcoin and ETH first, while the high beta of mainstream altcoins is only tested in very short Beta trading windows, far from entering a frenzied "blind sinking" period. For traders, what is genuinely worth keeping an eye on is not a single dollar liquidity index curve, but whether the overall market value of dollar-pegged tokens and DeFi TVL rise synchronously, as this marks the beginning of dollars substantially penetrating on-chain, providing sustainable ammunition for ETH and high-beta assets.

From Hayes’ perspective, what should traders focus on

Following Hayes' line of thought, an operable "liquidity radar" should have at least three layers of indicators. The outer circle is the dollar liquidity composite index he screenshot, recognized by some channels as the USDLIQ U Index: reading around 32.71 million, with an annual growth of about 14, indicating that "water levels are rising." Such an index is suitable as a directional reference, but its caliber and methodology have not been confirmed by multiple sources, serving only as an early warning light, not as a singular basis for decision-making. One layer inward is what he termed the critical engine—the balance sheets of the Federal Reserve and the banking system: the weekly published H.4.1 report directly shows whether the Federal Reserve's total assets are expanding again, and the total assets and reserve figures of major U.S. banks reflect whether banks are tightening or willing to expand. According to Hayes' framework, only when these two aspects show sustained signs of expansion can dollar liquidity transition from a "prelude of indicator rise" into a phase that truly drives Bitcoin to strengthen.

The innermost circle is the on-chain funds scale, used to determine whether dollar liquidity has genuinely penetrated the crypto market: whether the overall market capitalization of dollar-pegged tokens is rising, whether DeFi TVL increases accordingly, and whether the activity of large on-chain transfers and addresses related to institutions synchronously increases, together forming a "migration speedometer" from traditional finance to on-chain. When the outer liquidity index warms, the central bank and banking balance sheets begin to expand, and this set of on-chain indicators also shows resonance and acceleration, Hayes interprets it as the maturation condition for Bitcoin and mainstream assets' high beta market. It is important to emphasize that this perspective is Hayes' personal judgment rather than any policy commitment, nor does it constitute a guarantee on future prices; for traders, what matters more is to use this set of indicators within their own macro cycle view and risk tolerance, treating each indicator's change as a signal to adjust position probabilities and rhythms, rather than a certain answer to bet heavily on without conditions.

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