Key Takeaways
- •Arthur Hayes attributes the current Bitcoin correction to a reduction in global dollar liquidity, not a lack of institutional interest.
- •Hayes predicts Bitcoin could drop to $80,000 before potentially reaching $250,000 by the end of 2025.
- •Massive outflows from Bitcoin ETFs are occurring, which Hayes argues are manipulated by "base trade" strategies employed by hedge funds.
Bitcoin as a Global Liquidity Barometer
Arthur Hayes, a prominent figure in the cryptocurrency space and former head of BitMEX, offers a contrarian view on the recent crypto market downturn. He asserts that Bitcoin's price movements are primarily driven by expectations regarding future money supply, rather than regulatory developments or institutional sentiment.
"Bitcoin is the barometer of the free market in terms of global fiat liquidity," Hayes stated in a recent analysis. This perspective challenges conventional interpretations of market dynamics.
Bitcoin experienced a significant drop, falling below $90,000 and erasing its gains for 2025, even as major US stock indices like the S&P 500 and Nasdaq 100 remained near their all-time highs. This divergence is a cause for concern for Hayes.
He suggests that a substantial correction in stock markets, coupled with persistently high interest rates, would compel the US government to inject significant liquidity into the economy. In such a scenario, Hayes forecasts a potential Bitcoin price range of $200,000 to $250,000 by the end of the year. However, he also anticipates a preceding dip to $80,000, a prediction rooted in the expectation of an expansionary monetary policy from the Federal Reserve and the US Treasury to bolster economic stability.
Hayes notes that Bitcoin has seen price increases since April, despite a decline in dollar liquidity according to his indicators. He attributes this anomaly to institutional inflows into Bitcoin ETFs and the pro-cryptocurrency stance of the Trump administration. However, he believes this dynamic is now reaching its limitations.
Understanding Crypto ETF Outflows
Bitcoin ETFs have recently seen substantial outflows, with BlackRock's IBIT, a leading ETF, recording a record single-day outflow of $463 million on November 14. Over the course of that week, crypto funds globally experienced collective losses totaling $2 billion.
Hayes contends that these outflows do not signify a retreat from Bitcoin by institutional investors. Instead, he explains them as a consequence of a specific financial strategy known as the "base trade." This strategy involves simultaneously purchasing a Bitcoin ETF and short-selling a BTC futures contract.
Traders engaging in this strategy profit from the price difference between the ETF and the futures contract. Notably, five of the largest holders of IBIT are hedge funds, including Goldman Sachs and Jane Street, which employ these products for arbitrage purposes.
"The main holders of the largest ETF are not Bitcoin buyers," Hayes emphasized. "They short sell a futures contract listed on CME to profit from the gap between the two."
In April, JPMorgan estimated the volume of such arbitrage operations across the financial sector to be as high as $400 billion. The profitability of these "base" trades has diminished with Bitcoin's price decline, leading to reduced inflows into ETFs as these strategies become less lucrative.
Retail investors, according to Hayes, are misinterpreting this situation, believing it indicates institutions are abandoning Bitcoin. In reality, institutions are merely adjusting their arbitrage positions. This misunderstanding can create a negative feedback loop: smaller investors sell, further contracting the "base," and prompting additional retreats in institutional flows.
Hayes concludes that the current Bitcoin correction is not a sign of capitulation but rather a mechanical adjustment related to global liquidity. He advocates for patience, suggesting that if traditional markets face a significant downturn and the Federal Reserve implements monetary easing, Bitcoin has the potential for substantial price appreciation.