Arthur Hayes Says Fed Liquidity Shift Could Send Bitcoin Back Above $110K

Arthur Hayes, co-founder of BitMEX and CIO at Maelstrom, has published an essay titled 'Frowny Cloud' in which he argues Bitcoin's weak 2025 was largely due to tightening U.S. dollar liquidity. He predicts a potential reversal in 2026, with Bitcoin possibly surpassing $110,000 if Fed liquidity returns to expansion.

The Federal Reserve's balance sheet is currently expanding through Reserve Management Purchases, marking a policy shift that could provide more liquidity in financial markets. This is expected to continue into 2026 and could drive asset prices, including Bitcoin, higher.

Hayes has positioned himself for this potential liquidity rebound by taking long positions in MicroStrategy and Japan's Metaplanet. He believes these stocks offer leveraged exposure to Bitcoin and could outperform the crypto itself during an upside move.

In 2025, Bitcoin struggled amid a tightening U.S. dollar liquidity environment. The Fed's quantitative tightening (QT) reduced liquidity and made credit harder to obtain. As a result, Bitcoin's price lagged behind both gold and U.S. tech stocks, which saw significant gains.

Bitcoin's price is expected to react strongly to changes in dollar liquidity. When liquidity is tight, risk assets like Bitcoin tend to suffer. Conversely, when liquidity is abundant, Bitcoin and other risk assets typically rise.

Hayes is also accumulating Zcash, despite recent turmoil surrounding the Electric Coin Company (ECC). He views the developer departures as a potential positive, believing they may lead to better products and more innovation.

The Federal Reserve's balance sheet expansion, combined with potential rate cuts, could lead to a weaker U.S. dollar. This dollar weakness often benefits risk assets like Bitcoin and equities.

Why Did This Happen?

The Federal Reserve has ended its quantitative tightening cycle and begun expanding its balance sheet again. This expansion is expected to continue and could inject more liquidity into the financial system, benefiting risk assets.

Hayes argues that Bitcoin's price has historically correlated with U.S. dollar liquidity. When liquidity is tight, Bitcoin tends to underperform. When it returns, Bitcoin often sees a rebound.

Bitcoin's performance in 2025 was influenced by tightening liquidity and higher interest rates. The Fed's balance sheet shrank during this period, limiting credit availability and affecting Bitcoin's price.

How Did Markets React?

The market has shown mixed reactions to the potential liquidity expansion. Bitcoin's price rose slightly in early 2026, reflecting some optimism about the Fed's policy shift.

MicroStrategy and Metaplanet have seen their valuations fluctuate in line with Bitcoin's price. As Bitcoin approaches $110,000, these stocks may attract renewed investor interest.

Zcash's price has also shown some volatility, partly due to uncertainty around the project's development team. However, Hayes views this as an opportunity to accumulate at discounted prices.

What Are Analysts Watching Next?

Analysts are closely watching the Fed's balance sheet expansion and its impact on Bitcoin's price. If liquidity continues to expand, Bitcoin could see a significant rebound.

Investors are also monitoring MicroStrategy and Metaplanet for signs of outperformance. These stocks could benefit from renewed investor interest in Bitcoin as the market shifts.

Zcash's future is being watched closely, especially after the developer departures at Electric Coin Company. The market will assess whether these changes lead to better products and innovation.

The overall market is positioning for a potential liquidity rebound. If the Fed continues to expand its balance sheet and lower interest rates, Bitcoin and other risk assets could see significant gains.

Bitcoin's price is expected to closely follow U.S. dollar liquidity trends. A rebound in liquidity could lead to a renewed upward trend for Bitcoin.