Arthur Hayes: Bitcoin Rally Tied to U.S. Government Shutdown End

The crypto market has been in a weak state over the last few weeks, with bitcoin finally falling below $100,000 on Tuesday. Amid speculations about the end of the bull cycle, trader and market expert Arthur Hayes has identified the ongoing U.S. government shutdown as the primary factor suppressing prices. Hayes revealed that the Treasury General Account is currently above its $850 billion target by approximately $150 billion, creating what he describes as a negative dollar liquidity balance.

This unusual situation stems from the Treasury continuing to borrow money through debt auctions during the shutdown but delaying spending. The resulting liquidity drain has created choppy market conditions and broader declines across financial markets. Hayes explained that under normal circumstances, the increasing money supply from government debt issuance would have trickled down to the crypto market and kept BTC and other assets afloat, but the shutdown has created a temporary hitch in that process.

Arthur Hayes detailed in his article titled ‘Hallelujah’ how different market participants drive liquidity by purchasing Treasury bills relentlessly. These participants include money market funds, foreign central banks, the Too Big to Fail banks, commercial banks, and Relative Value Hedge Funds. The American entrepreneur emphasized that government-issued debt invariably grows the money supply, and this expansion ultimately benefits risk assets like bitcoin.

The primary reason the U.S. government continually increases its supply of dollars is to maintain its ability to finance borrowing. Hayes explained that governments often prefer issuing debt over raising taxes to fund their agenda. As the new administration continues to borrow to finance its programs, the Federal Reserve’s balance sheet will keep expanding, creating a positive trend in dollar liquidity that historically drives cryptocurrency prices to new highs.

According to Hayes’ analysis, when the U.S. government shutdown ends, the Treasury will release approximately $150 billion in excess funds into financial markets, transforming the current negative liquidity balance into a positive one. This injection of capital could reignite the bull run and push bitcoin to another all-time high before the current cycle concludes. The market expert insists that the ‘dollar money market plumbing’ is rarely wrong in signaling such liquidity shifts.

Hayes predicted that many traders will dump their holdings during this period of market weakness, but he considers this a mistake given the impending liquidity release. His analysis connects government debt financing mechanisms directly to cryptocurrency price movements, suggesting that the fundamental drivers for another bitcoin rally remain intact despite current price weakness. The resolution of the shutdown, now extending into its second month, represents the key catalyst that could unlock the next phase of crypto market growth.