BitMEX co-founder Arthur Hayes has published a detailed essay titled "Frowny Cloud," arguing that Bitcoin's weak performance in 2025 was a direct result of tightening U.S. dollar liquidity and forecasting a significant reversal in 2026. Hayes contends that Bitcoin's price action is almost exclusively tied to the rate of fiat currency debasement, meaning it suffers when liquidity contracts and rallies when it expands.
Hayes explained that throughout 2025, the U.S. Federal Reserve engaged in quantitative tightening (QT), withdrawing liquidity from the system and creating tighter credit conditions. This scarcity of dollars negatively impacted risk assets like Bitcoin, which traded sideways or down, closing the year in a range between $87,000 and $95,000. In contrast, gold surged 44.4% due to central bank buying, and U.S. tech stocks rallied on AI enthusiasm, highlighting Bitcoin's unique sensitivity to dollar flows.
Looking ahead to 2026, Hayes expects a sharp expansion in dollar liquidity through three primary channels: First, he anticipates the Federal Reserve will resume balance sheet growth, potentially injecting at least $40 billion per month back into the system. Second, banks are likely to increase lending as financial conditions ease. Third, the Fed may restart purchases of mortgage-backed securities, potentially around $200 billion, to lower mortgage rates and stimulate the economy.
Hayes believes this influx of liquidity will create a favorable environment for Bitcoin and other crypto assets. He suggests that consistent monetary expansion is required for Bitcoin to trade near or above $100,000, a level he expects could be reached in 2026, potentially pushing the price past $110,000 and to new highs if momentum builds.
Beyond a direct Bitcoin bet, Hayes favors leveraged plays on the cryptocurrency, specifically naming MicroStrategy (MSTR) and Japanese firm Metaplanet (3350) as his preferred vehicles. These companies hold large Bitcoin treasuries on their balance sheets and tend to outperform BTC during rallies.
Supporting the analysis, on-chain data shows the Bitcoin Value Days Destroyed indicator sitting at a historically low level of 0.53 in early 2026, indicating that long-term holders are inactive and younger coins are being moved—a sign of strong investor confidence. Furthermore, the derivatives market has undergone significant deleveraging, with total open interest falling over 31% from an October 2025 peak above $15 billion to around $10 billion, a reset that has historically coincided with major market bottoms.
