U.S. Treasury Bonds Failing, Dollar Overissued, Is Bitcoin About to Take Off? This Is Arthur Hayes' Latest Breakthrough Logic

Core Argument: As long as the US government continues to live on borrowed money, the Federal Reserve’s balance sheet will inevitably expand—this process is essentially disguised money printing, ultimately driving up Bitcoin and crypto asset prices.

The Problem Chain: Why do politicians always borrow instead of raising taxes?

It’s simple—raising taxes is unpopular, spending money is popular. So the US government would rather take on debt, figuring that by the time the bill comes due, they might already be out of office.

According to major US banks, the federal deficit for fiscal year 2025 is about $2 trillion, all financed through debt issuance. This means:

Government deficit = Amount of new debt issued

Who’s buying all this US debt?

This is the key question. Let’s break it down:

Foreign central banks: After Russia’s assets were frozen, central banks around the world got spooked and started buying gold instead of US Treasuries. Since the Russia-Ukraine war in 2022, gold prices have soared.

US private sector: In 2024, the personal savings rate in the US is only 4.6%, far below the 6% deficit rate. The math doesn’t add up—there’s not enough money.

The four largest US commercial banks: In fiscal year 2025, they only bought $300 billion in Treasuries, while the Treasury issued $1.992 trillion. That’s a drop in the bucket.

The real bagholders: Relative Value Hedge Funds (RV Hedge Funds), especially those in the Cayman Islands. From January 2022 to December 2024, they bought a net $1.2 trillion in Treasuries, accounting for 37% of new issuance—almost as much as all other global foreign buyers combined.

The Hidden Play: How do RV funds come up with the money?

RV funds use a simple arbitrage:

• Buy spot Treasuries
• Simultaneously sell Treasury futures short
• Pocket the tiny 0.01% spread

Sounds unprofitable? It is. The only way to make it work is using leverage. They borrow money in the repo market every day to keep rolling their positions.

The Real Landmine: The Fed’s Stealth QE

This is Hayes’s core revelation—

What happens when the repo market runs out of money?

The Fed has a backstop: the Standing Repo Facility (SRF). As long as you have Treasuries as collateral, the Fed will supply unlimited cash at a rate capped by the federal funds rate (currently 4%).

This is stealth QE. On the surface, they say “this isn’t QE” (QE is now a dirty word), but in practice:

• QE usually means the Fed directly buys assets, increasing bank reserves
• Stealth QE is when the SRF lends to RV funds, but the effect is the same—it’s still money printing

Key indicator: As soon as SRF balances start rising from zero, it means stealth QE has been activated.

Where are we stuck now?

MMFs (money market funds) have already exited the reverse repo market (RRP), commercial bank reserves are shrinking (the Fed has reduced its balance sheet by hundreds of billions since 2022). Supply is squeezed, but demand keeps soaring (Biden and Trump are both spending wildly).

Short-term pressure: The US government is both issuing new debt and rolling over old debt, with about $150 billion in “extra liquidity” piled up in the Treasury’s account—this drains dollars from the market, so the crypto market is a bit sluggish right now.

Where is the Bitcoin opportunity?

When SRF gets activated on a large scale. According to Hayes’s logic:

SRF balances rise → US dollar supply increases → Dollar depreciates → Bitcoin appreciates

Present Treasury Secretary Bessent needs to issue $2 trillion in new debt every year plus roll over trillions more in old debt—there’s no way this is sustainable. Sooner or later, stealth QE will have to be triggered.

Conclusion: Control your risk for now and wait for the signal that stealth QE has begun. The logic is ironclad—it’s just a matter of time.

Author: Arthur Hayes (BitMEX Co-founder) Original Title: Hallelujah