Arthur Hayes, a prominent market analyst and former CEO of the cryptocurrency exchange BitMEX, is attributing Bitcoin’s recent price drops to reduced liquidity of the U.S. dollar rather than diminished support from government entities or a lack of interest from institutional investors. On a recent broadcast, he asserted that Bitcoin acts as a “free-market weathervane of global fiat liquidity,” indicating that it largely fluctuates based on expectations surrounding future dollar supply.
On Tuesday morning, Bitcoin’s price fell below $90,000, reaching its lowest point in seven months, effectively wiping out all gains made in 2025. Hayes draws attention to the fact that while Bitcoin struggles, major stock indexes like the S&P 500 and Nasdaq 100 are nearing all-time highs, suggesting that a significant financial event may be on the horizon. He posits that if the stock market experiences a correction of 10% to 20%, combined with interest rates remaining around 5%, the U.S. government is likely to respond by injecting more dollars into the economy. According to Hayes, this infusion of liquidity could drive Bitcoin’s price up to between $200,000 and $250,000 by the end of the year, provided that risk markets deteriorate and monetary policy is adjusted accordingly.
Hayes has noted that although Bitcoin appeared to rise since April, this was despite a decline in dollar liquidity as measured by his various metrics. He attributes this rise to strong inflows from institutional investors, particularly through Bitcoin ETFs, alongside positive fiscal rhetoric from the Trump administration. This trend, however, has seen a downturn recently, with Bitcoin ETFs facing unprecedented outflows. In fact, BlackRock’s Bitcoin Trust ETF (IBIT) recorded a staggering $463 million in one-day outflows last week, contributing to a total of $2 billion in global outflows for crypto funds over a week.
A closer look into the structure of investments in BlackRock’s IBIT reveals that numerous large cryptocurrency holders are hedge funds and investment firms such as Goldman Sachs and Jane Street. These entities engage in what is known as “basis trading,” wherein they take opposing positions in different instruments related to Bitcoin, such as buying the ETF while simultaneously shorting a Bitcoin futures contract. This strategy allows them to profit from the price differences between the asset and its futures contract.
Hayes elaborates that these major ETF holders are not actively investing in Bitcoin itself but are leveraging the ETF to execute basis trades in a capital-efficient manner. He emphasizes that the collapse in Bitcoin’s price has led to a reduction in the “basis” of these trades, thus making ETF inflows less attractive. Hayes warns that retail investors may be misinterpreting institutional behavior, seeing withdrawal from Bitcoin as a lack of confidence rather than a strategic financial maneuver. This misunderstanding could create a negative feedback loop, prompting retail investors to sell their holdings, thereby exacerbating the decline in Bitcoin’s price and leading further institutional sales.
