In his latest essay titled "Hallelujah," BitMEX co-founder Arthur Hayes outlines how increasing U.S. government debt and money supply will act as catalysts for the next major bull market in Bitcoin and the broader crypto space. Hayes argues that governments, particularly the U.S., consistently spend more than they collect, opting for borrowing over tax hikes to avoid public discontent and secure re-election. This leads to annual deficits of around $2 trillion, funded by equivalent debt issuance.
Hayes identifies that foreign central banks are no longer key buyers of U.S. Treasuries, shifting to gold after the 2022 freeze of Russian reserves highlighted geopolitical risks. Domestic savings and commercial banks also fall short, with the U.S. personal savings rate at 4.6% in 2024 compared to a deficit of 6% of GDP. Instead, Relative Value (RV) hedge funds based in jurisdictions like the Cayman Islands have become marginal buyers, absorbing $1.2 trillion in U.S. Treasuries between 2022 and 2024, or 37% of net issuance.
These funds use leveraged repo financing, where they pledge Treasuries to borrow cash overnight at rates tracking SOFR (Secured Overnight Financing Rate). When liquidity tightens and SOFR rises, the Federal Reserve intervenes through its Standing Repurchase Facility (SRF), providing emergency funds at the upper bound. Hayes labels this "Stealth QE"—unannounced money creation that expands the global dollar supply. As Treasury issuance continues, SRF usage is expected to grow, injecting liquidity that historically correlates with Bitcoin rallies.
In the short term, Hayes acknowledges factors like the U.S. government shutdown and a Treasury General Account $150 billion above its $850 billion target are draining liquidity, causing current crypto market weakness and potential altcoin collapses. However, he urges investors not to panic-sell, emphasizing that the four-year Bitcoin cycle aligns with these liquidity mechanics. Hayes predicts Bitcoin could reach $250,000 by end of 2025, driven by institutional demand and renewed risk appetite once hidden QE takes effect.
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