Bitcoin slipped under $77,000 on Tuesday following another unsuccessful breakout attempt, as higher oil prices and upcoming central bank decisions reduced appetite for risk.
But Maelstrom CIO Arthur Hayes believes that wartime fiscal expansion is now reversing conditions in Bitcoin’s favor.
War, Debt, and AI Disruption
At Bitcoin Vegas 2026, Hayes outlined a more bullish outlook for the asset as he projected it could reach $125,000 by the end of the year as global liquidity conditions shift alongside rising war-related spending.
Hayes said his updated stance is shaped by three factors – credit deflation tied to artificial intelligence, leadership changes at the Federal Reserve, and a structural adjustment in how US banks are expected to absorb growing government debt. The BitMEX co-founder framed his argument around money supply expansion, while highlighting that increased fiscal pressure – particularly from defense budgets – will likely require more liquidity in the system.
Upon assessing the ongoing US-Iran conflict, Hayes acknowledged disruption, but said that the market has not reached a level severe enough to trigger a broad risk-off environment, allowing investors to continue focusing on macro liquidity trends rather than geopolitical panic. He then turned to the credit contraction linked to artificial intelligence, and found that automation is eroding revenues for software-as-a-service (SaaS) companies and threatening high-income knowledge worker jobs that make up a significant portion of bank lending.
Looking at performance since Bitcoin’s October high, Hayes said there has been a significant divergence between markets. Bitcoin dropped by 40%, but the Nasdaq was mostly “flat,” which he believes reflects pressure on SaaS companies as AI replaces expensive human labor. This amounted to a quiet credit deflation event that central banks failed to fully recognize, which resulted in insufficient monetary expansion at the time and contributed to Bitcoin’s decline.
Hayes characterized AI as a subprime risk to credit markets, particularly because many affected workers carry loans backed by their previously stable incomes. However, he said the macro backdrop changed following the escalation of the US-Iran conflict in late February.
According to Hayes, governments openly acknowledging a wartime footing implies higher defense expenditures that will need to be financed through increased borrowing and, ultimately, monetary expansion. Addressing concerns about incoming Federal Reserve chair Kevin Warsh, Hayes argued that expectations of tighter policy are misplaced, as the central bank will remain constrained by the need to maintain orderly bond markets in coordination with Treasury Secretary Scott Bessent.
He described a balance sheet adjustment in which commercial banks exchange reserve balances for Treasurys and repurchase agreements, effectively reducing the Fed’s reported balance sheet without draining liquidity from the system.
Hayes said this mechanism means the net liquidity impact remains unchanged, regardless of how policy is presented publicly. He also pointed to the implementation of the Enhanced Supplemental Leverage Ratio on April 1 as a major catalyst, while explaining that the rule allows major banks such as JPMorgan Chase and Citibank to hold fewer reserves against assets, thereby expanding their capacity to purchase government debt and extend loans.
Outpacing AI-Driven Credit Losses
Citing estimates from S&P Global, Hayes said the regulatory change could generate $1.3 trillion in new lending. Combined with the banking system’s credit multiplier, this could translate into roughly $4 trillion in additional credit, which is more than offsetting losses linked to AI-driven job displacement.
He further explained that foreign demand for US Treasurys has stagnated even as total debt continues to climb, increasing reliance on domestic banks to absorb new issuance, particularly as defense spending rises sharply.
“We’ve had some chop. We’ve had a war. Now it’s time to break out. That’s why I believe Bitcoin is going higher. I think my end-of-year target is around $125,000.”
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